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ORGANIZING FOR 
WORK 



BY 
H. L. GANTT 



NEW YORK 

H ARC CURT, BRACE AND HOWE 

1919 






'5 



COPTBIOHT, 1919 
BY 

HAKOOURT, BRACK AND HOWB, IBO. 



0} ,'5£?6 V 



gfct ®ulnn & jBotm Commmg 

BOOK MANUFACTURERS 
RAHWAY Ne!w JERSEY 



PEEFACE 

The two greatest forces in any community are 
the economic force and the political force backed 
by military power. To develop the greatest 
amount of strength for the benefit of the com- 
munity, they must work together, hence must 
be under one direction. 

Germany had already accomplished this union 
before entering the war by having her political 
system practically take over the industrial, and 
the Allies rapidly followed suit after the war 
began. 

We also found soon after entering the war 
that our political system alone was not ade- 
quate to the task before it, and supplemented 
it by a food administrator, a coal administrator, 
a war labor board, a war industries board, a 
shipping board, and others, which were intended 
to be industrial, and as far as possible removed 
from political influences. There is no question 
that they handled their problems much more 
ejffectively than was possible under strictly 
political control. 

The Soviet system is an attempt to make th© 
m. 



iv PREFACE 

business and industrial system serve the com- 
munity as a whole, and in doing so to take over 
the functions of and entirely supplant the po- 
litical system. Whether it can be made to work 
or not remains to be seen. Up to date it has 
failed, possibly because the control has fallen 
into the hands of people of such extreme radical 
tendencies that they would probably wreck any 
system. 

The attempt which extreme radicals all over , 
the world are making to get control of both 
the political and business systems on the theory 
that they would make the industrial and busi- 
ness system serve the community, is a real 
danger so long as our present system does not 
accomplish that end; and this danger is real 
irrespective of the fact that they have as yet 
nowhere proved their case. 

Is it possible to make our present system 
accomplish this end? If so, there is no excuse 
for such a change as they advocate, for the 
great industrial and business system on which 
our modern civilization depends is essentially 
sound at bottom, having grown up because of 
the service it rendered. Not until it realized 
the enormous power it had acquired through 
making itself indispensable to the community 
did it go astray by making the community serve 
it. It then ceased to render service demo- 



PREFACE V 

cratically, but demanded autocratically that its 
will be done. "It made tools and weapons of 
cities, states, and empires." Then came the 
great catastrophe. 

In order to resume our advance toward the 
development of an unconquerable democratic 
civilization, we must purge our economic sys- 
tem of all autocratic practices of whatever kind, 
and return to the democratic principle of ren- 
dering service, which was the basis of its won- 
derful growth. 

Unless within a short time we can accomplish 
this result, there is apparently nothing to pre- 
vent our following Europe into the economic 
confusion and welter which seem to threaten 
the very existence of its civilisation. 



CONTENTS 



I The Parting of the Ways . 

11 The Engineer as the Industrial Leader 

III Efficiency and Idleness . 

IV Production and Costs .... 

y, Value of an Industrial Property De 
pends on its Productive Capacity 

VI An Extension of the Credit System to 
make It Democratic 

VII Economics of Democracy . 

yill Democracy in Production 

IX Democracy in the Shop . 

X Democracy in Management 

XI " The Religion of Democracy 



FAGB 

3 

16 
23 

28 

41 

52 
60 
74 
84 
92 
98 



ORGANIZING FOR WORK 



THE PARTING OF THE WAYS 

Modern civilization is dependent for its ex- 
istence absolutely upon the proper functioning 
of the industrial and business system. If the 
industrial and business system fails to function 
properly in any important particular, such, for 
instance, as transportation, or the mining of 
coal, the large cities will in a short time run 
short of food, and industry throughout the 
country will be brought to a standstill for lack 
of power. 

It is thus clearly seen that the maintenance 
of our modern civilization is dependent abso- 
lutely upon the service it gets from the in- 
dustrial and business system. 

This system as developed throughout the 
world had its origin in the service it could and 
did render the community in which it originated. 
With the rise of a better technology it was 
found that larger industrial aggregations could 
render better and more effective service than 
the original smaller ones, hence the smaller 
ones gradually disappeared leaving the field to 
those that could give the better service. 

3 



4 ORGANIZING FOR WORK 

Such was the normal and natural growth of 
business and industry which obtained its profits 
because of its superior service. Toward the 
latter part of the nineteenth century it was 
discovered that a relatively small number of 
factories, or industrial units, had replaced the 
numerous mechanics with their little shops, such 
as the village shoemaker and the village wheel- 
wright, who made shoes and wagons for the 
community, and that the conununity at large 
was dependent upon the relatively smaller 
number of larger establishments in each in- 
dustry. 

Under these conditioiis it was but natural 
that a new class of business man should arise 
who realized that if all the plants in any in- 
dustry were combined under one control, the 
community would have to accept such service 
as it was willing to offer, and pay the price 
which it demanded. In other words, it was 
clearly realized that if such combinations could 
be made to cover a large enough field, they 
would no longer need to serve the community 
but could force the conununity to do their bid- 
ding. The Sherman Anti-Trust Law was the 
first attempt to curb this tendency. It was, 
however, successful only to a very limited ex- 
lent, for the idea that the profits of a business 
were justified only on account of the service 



THE PARTING OF THE WAYS 5 

it rendered was rapidly giving way to one in 
which profits took the first place and service 
the second. This idea has grown so rapidly 
and has become so firmly imbedded in the mind 
of the business man of today, that it is incon- 
ceivable to many leaders of big business that it 
is possible to operate a business system on the 
lines along which our present system grew up ; 
namely, that its first aim should be to render 
service. 

It is this conflict of ideals which is the source 
of the confusion into which the world now seems 
to be driving headlong. The community needs 
service first, regardless of who gets the profits, 
because its life depends upon the service it 
gets. The business man says profits are more 
important to him than the service he renders; 
that the wheels of business shall not turn, 
whether the community needs the service or 
not, unless he can have his measure of profit. 
He has forgotten that his business system had 
its foundation in service, and as far as the 
community is concerned has no reason for ex- 
istence except the service it can render. A 
clash between these two ideals will ultimately 
bring a deadlock between the business system 
and the community. The "laissez faire" 
process in which we all seem to have so much 
faith, does not promise any other result, for 



6 ORGANIZING FOR WORK 

there is no doubt that industrial and social 
unrest is distinctly on the increase throughout 
the country. 

I say, therefore, we have come to the Parting 
of the Ways, for we must not drift on indefi- 
nitely toward an economic catastrophe such as 
Europe exhibits to us. We probably have 
abundant time to revise our methods and stave 
off such a catastrophe if those in control of 
industry will recognize the seriousness of the 
situation and promptly present a positive pro- 
gram which definitely recognizes the responsi- 
bility of the industrial and business system to 
render such service as the community needs. 
The extreme radicals have always had a clear 
vision of the desirability of accomplishing this 
end, but they have always fallen short in the 
production of a mechanism that would enable 
them to materialize their vision. 

American workmen will prefer to follow a 
definite mechanism, which they comprehend, 
rather than to take the chance of accomplish- 
ing the same end by the methods advocated by 
extremists. In Russia and throughout eastern 
Europe, the community through the Soviet form 
of government is attempting to take over the 
business system in its effort to secure the 
service it needs. Their methods seem to us 
crude, and to violate our ideas of justice; but 



THE PAETING OF THE WAYS 7 

in Russia they replaced a business system which 
was rotten beyond anything we can imagine. 
It would not require a very perfect system to 
be better than what they had, for the dealings 
of our manufacturers with the Eussian business 
agents during the war indicated that graft was 
almost the controlling factor in all deals. The 
Soviet government is not necessarily Bolshe- 
vistic nor Socialistic, nor is it political in the 
ordinary sense, but industrial. It is the first 
attempt to found a government on industrial- 
ism. Whether it will be ultimately successful 
or not, remains to be seen. While the move- 
ment is going through its initial stages, how- 
ever, it is unquestionably working great hard- 
ships, which are enormously aggravated by the 
fact that it has fallen under the control of the 
extreme radicals. Would it not be better for 
our business men to return to the ideals upon 
which their system was founded and upon which 
it grew to such strength ; namely, that reward 
sjiould be dependent solely upon the service 
rendered, rather than to risk any such attempt 
on the part of the workmen in this country, even 
if we could keep it clear of extreme radicals, 
which is not likely? We all realise that any 
reward or profit that husiness arbitrarily takes, 
over and above that to which it is justly entitled 
for service rendered, is just as much the exer- 



8 ORGANIZING FOR WORK 

cise of autocratic power and a menace to the in- 
dustrial peace of the world, as the autocratic 
military power of the Kaiser was a menace to 
international peace. This applies to Bolshe- 
vists as well as to Bankers. 

I am not suggesting anything new, when I 
say reward must be based on service rendered, 
but am simply proposing that we go back to 
the first principles, which still exist in many 
rural communities where the newer idea of 
big business has not yet penetrated. Unques- 
tionably many leading business men recognize 
this general principle and successfully operate 
their business accordingly. Many others would 
like to go back to it, if they saw how such a 
move could be accomplished. 

Under stress of war, when it was clearly seen 
that a business and industrial system run 
primarily for profits could not produce the war 
gear needed, we promptly adopted a method of 
finance which was new to us. The Federal Gov- 
ernment took over the financing of such corpora- 
tions as were needed to furnish the munitions 
of war. The financing power did not expect 
any profit from these organizations, but at- 
tempted to run them in such a manner as to 
deliver the greatest possible amount of goods. 

The best known of these is the Emergency 
Fleet Corporation. It is not surprising that 



THE PARTING OF THE WAYS 9 

such a large corporation developed in such 
great haste should have been inefficient in its 
operating methods, but there are reasons to 
believe that it will, in the long run, prove to 
have handled its business better than similar 
undertakings that were handled directly- 
through the Washington bureaus. It gave us 
a concrete example of how to build a Public 
Service corporation, the fundamental fact con- 
cerning which is that it must be financed hy 
public money. That it has not been more suc- 
cessful is due, not to the methods of its financ- 
ing, but to the method of its operation. The 
sole object of the Fleet Corporation was to 
produce ships, but there has never been among 
the higher officers of the Corporation a single 
person, who, during the past twenty years, has 
made a record in production. They have all 
without exception been men of the "business" 
type of mind w^ho have made their success 
through financiering, buying, selling, etc. If 
the higher officers of the Fleet Corporation had 
been men who understood modem production 
methods, and had in the past been successful in 
getting results through their use, it is probable 
that the Corporation would have been highly 
successful, and would have given us a good 
example of how to build an effective Public 
Service corporation. \ 



10 ORGANIZING FOR WORK 

Mr. William B. Colver, Chairman of the Fed- 
eral Trade Commission, in the summer of 1917, 
explained how we might have a Public Service 
corporation for the distribution of coal. In 
such a corporation as Mr. Colver outlined, there 
would be good pay for all who rendered good 
service, but no "profit." Of course, all those 
who are now making profits over and above the 
proper reward for service rendered in the dis- 
tribution of coal, opposed Mr. Colver 's plan, 
which was that a corporation, financed by the 
Federal Government, should buy at the mouth 
of each mine such coal as it needed, at a fair 
price based on the cost of operating that mine ; 
that this corporation should distribute to the 
community the coal at an average price, in- 
cluding the cost of distribution. We see no 
reason why such a corporation should not have 
solved the coal problem, and furnished us with 
an example of how to solve other similar 
problems. We need such information badly, 
for we are rapidly coming to a point where we 
realize that disagreements between employer 
and employee as to how the profits shall be 
shared can no longer be allowed to work hard- 
ship to the community. 

The chaotic condition into which Europe is 
rapidly drifting by the failure of the present 
industrial and financial system, emphasizes the 



THE PAETING OP THE WAYS 11" 

fact that in a civilization like ours the problems 
of peace may be quite as serious as the prob- 
lems of war, and the emergencies created by 
them therefore justify the same kind of action 
on the part of the government as was justified 
by war. 

Before proper action can be taken in this 
matter it must be clearly recognized that today 
economic conditions have far more power for 
good or for evil than political theories. This is 
becoming so evident in Europe that it is im- 
possible to fail much longer to recognize it here. 
The revolutions which have occurred in Europe 
and the agitation which seems about to create 
other revolutions, are far more economic than 
political, and hence can be offset only by eco- 
nomic methods. 

The Labor Unions of Great Britain, and the 
Soviet System of Russia, both aim, by different 
methods, to render service to the community, 
but whether they will do it effectively or not is 
uncertain, for they are revolutionary, and a 
revolution is a dangerous experiment, the result 
of which cannot be foreseen. The desired result 
can be obtained without a revolution and by 
methods with which we are already familiar, 
if we will only establish real public service 
corporations to handle problems which are of 
most importance to the community, and realize 



12 ORGANIZING FOR WORK 

that capital like labor is entitled only to the 
reward it earns. 

Inasmuch as the profits in any corporation 
go to those who finance that corporation, the 
only guarantee that a corporation is a real 
public service corporation is that it is financed 
by public money. If it is so financed all the 
profits go to the community, and if service is 
more important than profits, it is always pos- 
sible to get a maximum service by eliminating 
profits. 

This is the basis of the Emergency Fleet 
Corporation, and numerous other war corpora- 
tions, which rendered such public service as 
it was impossible to get from any private corpo- 
rations. Eealizing that on the return of peace 
many private corporations feel that they have 
no longer such social responsibilities as they 
cheerfully accepted during the war, it would 
seem that real public service corporations would 
be of the greatest possible advantage in the 
industrial and business reorganization that is 
before us. 

We have in this country a little time to think, 
because economic conditions here are not as 
acute as they are in Europe, and because of the 
greater prosperity of our country. But we 
must recognize the fact that our great compli- 
cated system of modern civilization, whose very 



THE PARTING OP THE WAYS 13 

life depends upon the proper functioning of the 
business and industrial system, cannot be sup- 
ported very much longer unless the business 
and industrial system devotes its energies as a 
primary object to rendering the service neces- 
sary to support it. We have no hesitation in 
saying that the workmen cannot continue to get 
high wages unless they do a big day's work. Is 
it not an equally self-evident fact that the busi- 
ness man cannot continue to get big rewards 
wiless he renders a corresponding amount of 
service? Apparently the similarity of these 
two propositions has not clearly dawned upon 
the man with the financial type of mind, for the 
reason, perhaps, that he has never compared 
them. 

Such a change would produce hardships only 
for those who are getting the rewards they are 
not earning. It would greatly benefit those who 
are actually doing the work. 

In order that we may get a clear conception 
of what such a condition would mean, let us 
imagine two nations as nearly identical as we 
can picture them, one of which had a business 
system which was based upon and supported 
by the service it rendered to the community. 
Let us imagine that the other nation, having the 
same degree of civilization, had a business 
system run primarily to give profits to those' 



U ORGANIZING FOR WORK 

who controlled that system, which rendered 
service when such service increased its profits, 
but failed to render service when such service 
did not make for profits. To make the com- 
parison more exact, let us further imagine a 
large portion of the most capable men of the 
latter community engaged continually in a pull 
and haul, one against the other, to secure the 
largest possible profits. Then let us ask our- 
selves in what relative state of economic de- 
velopment, these two nations would find them- 
selves at the end of ten years? It is not neces- 
sary to answer this question. 

I say again, then, we have come to the Parting 
of the Ways, for a nation whose business system 
is based on service will in a short time show 
such advancement over one whose business sys- 
tem is operated primarily with the object of 
securing the greatest possible profits for the 
investing class, that the latter nation will not 
be long in the running. 

America holds a unique place in the world 
and by its traditions is the logical nation to con- 
tinue to develop its business system on the 
line of service. What is happening in Europe 
should hasten our decision to take this step, for 
the business system of this country is identical 
with the business system of Europe, which, if 
we are to believe the reports, is so endangered 



THE PARTING OP THE WAYS 15 

by the crude efforts of the Soviet to make busi- 
ness serve the community. 

The lesson is this: the business system must 
accept its social responsibility and devote itself 
primarily to service, or the community will ulti- 
mately make the attempt to take it over in 
order to operate it in its own interest. 

The spectacle of the attempt to accomplish 
this result in eastern Europe is certainly not so 
attractive as to make us desire to try the same 
experiment here. Hence, we should act, and 
act quickly, on the former proposition. 



II 

THE ENGINEER AS THE INDUSTRIAL 
LEADER 

The principles explained in the preceding 
chapter may seem to be sufficiently clear and 
simple to appeal to almost any enlightened 
person, and give him the desire to carry them 
out. The desire to put them in operation, how- 
ever, is not enough. He must have at least 
some inkling of the methods by which their 
application can be made. He must understand 
the forces with which he will have to contend 
in introducing the newer methods; the argu- 
ments that will be brought up against them, and 
the obstacles that will be put in his way by 
those who are perfectly well satisfied to go on 
as they are, in spite of the fact that a change is 
seen to be absolutely necessary in the long run. 
In the following chapters we shall try to give 
a picture of how business and industry are con- 
ducted, and some explanation of the forces con- 
trolling each. Most of our business and in- 
dustrial troubles arise from the fact that the 
controlling factors are not apparent to the 
public in general and can be disclosed only by a 

16 



INDUSTRIAL ENGINEER 17 

thorough and exhaustive study of what is taking 
place. 

Following this general exposition of the sub- 
ject, we shall show a system of progress charts 
which bear the same relation to the statistical 
reports which are so common that a moving 
picture film bears to a photograph. This chart 
system has been in use only a few years, but 
it is so simple that it is readily understood by 
the workman and employer, and so comprehen- 
sive that one intelligent workman made the 
remark, "If we chart everything we are doing 
that way, anybody can run the shop." While 
we are hardly prepared to agree with this 
opinion, we are entirely satisfied that if the 
facts about a business can be presented in a 
compact and comprehensive manner, it will be 
found possible to run any business much more 
effectively than has been the custom in the past. 

We wish to emphasize the practicality of our 
methods, because we have been accused of 
preaching altruism in business, which our 
critics say will not work. We know altruism 
will not work and absolutely repudiate the idea 
that our methods are altruistic; as a matter of 
fact, we believe we should get full reward for 
service rendered. Moreover, we believe that 
if everybody got full reward for service ren- 
dered there would not be so many "profits" 



18 ORGANIZING FOR WORK 

for the employer and employee to quarrel over, 
so often to the detriment of the public. 

With this introduction, we shall try to make 
clear what has been happening in the industrial 
and business world, and draw our conclusions 
as we go along. 

When the war broke out, many of our leading 
business men who had accumulated wealth 
through the accepted business methods, which 
had to do primarily with buying, selling, financ- 
ing, etc., went to Washington and offered their 
services at a dollar a year. They did this with 
the best intentions, believing that the business 
methods which had brought them success in the 
past were the ones needed in tipae of war. They 
soon found that the government had taken over 
all financial operations ; that there was no sell- 
ing to be done, and that the problem quickly 
reduced itself to one of production, in which 
many of them had had no experience. There 
were, of course, many marked exceptions, for 
some grasped the problem at once and did 
wonderful work. As a general rule, however, 
this was not the case, for it takes a very capable 
man to grasp quickly the essentials of a big 
problem that is entirely new to him. Hence, as 
a rule, they adhered strictly to the methods they 
had been accustomed to, and called to assist 
them great numbers of accountants and stat- 



INDUSTRIAL ENGINEER 19 

isticians (all static), both groups thoroughly 
convinced that record-keeping was the main aim 
of business ; and while the army was calling for 
ships and shells, trucks and tanks, these men 
busied themselves with figures, piling up statis- 
tics, apparently quite satisfied that they were 
doing their part. In many cases these statis- 
ticians did not differentiate between that which 
is interesting and that which is important. In 
but few cases did they realize that from the 
standpoint of production, yesterday's record is 
valuable only as a guide for tomorrow. They 
did not understand that it is only the man who 
knows what to do and how to do it that can 
direct the accumulation of the facts he needs 
for his guidance. In too many cases, such men 
had been left behind to run the factories, while 
their superiors, who had had no experience in 
production, undertook for the government 
the most important job of production we 
have ever had, depending almost entirely 
upon accountants and statisticians for guid- 
ance. The results of their labors are now 
history, a knowledge of which will soon be the 
common property of all. In spite of this handi- 
cap, we did much good work. 

There is no question that both our army and 
navy have made good to a degree which none 
of our allies anticipated, but it is also true that 



20 ORGANIZING FOR WORK 

if we had not had economic assistance from our 
allies, the results they have obtained would have 
been impossible. As a matter of fact, it is well 
known that our industrial system has not 
measured up as we had expected. To substanti- 
ate this we have only to mention airplanes, 
ships, field guns, and shells. The reason for its 
falling short is undoubtedly that the men direct- 
ing it had been trained in a business system 
operated for profits, and did not understand one 
operated solely for production. This is no criti- 
cism of the men as individuals; they simply 
did not know the job, and, what is worse, they 
did not know they did not know it. 

Inasmuch as our economic strength in the 
future will be based on production, we must 
modify our system as rapidly as possible, with 
the end in view of putting producers in charge. 
To do this, opinions must give place to facts, 
and words to deeds, and the engineer, who is 
a man of few opinions and many facts, few 
words and many deeds, should be accorded the 
leadership which is his proper place in our 
economic system. 

It must be remembered, however, that the en- 
gineer has two distinct functions. One is to 
design and build his machinery; the second is 
to operate it. In the past he has given more 
attention to the former function than to the 



INDUSTRIAL ENGINEER 21 

latter. At first this was but a natural and 
necessary condition, for the various engineer- 
ing structures were comparatively few and were 
operated in a measure simply and independ- 
ently. Now, however, with the multiplicity of 
machines of all kinds, the operation of one is 
many times intimately dependent upon the 
operation of another, even in one factory. In 
addition to this the operation of one factory is 
always dependent upon the successful operation 
of a number of others. Because this inter- 
operation is necessary to render service or pro- 
duce results, the complexity of the operating 
problem has greatly increased, for the operation 
of a large number of factories in harmony 
presents much the same problem as the har- 
monious operation of the machines in one fac- 
tory. It is only, however, where the factories 
have been combined under one management that 
any direct attempt at this kind of control has 
been made. To be sure, the relation between 
the demand for and supply of the product, sup- 
plemented by a desire to get the greatest pos- 
sible profit, has resulted in a sort of control, 
which has usually been based more on opinion 
than facts, and generally exercised to secure the 
greatest possible profits rather than to render 
the greatest service. 
Emphasizing again the self-evident fact that 



22 ORGANIZING FOB WORK 

great reward can only be continuously got by 
corresponding service, and that the maximum 
service can be rendered only when actions are 
based on knowledge, we realize that the logical 
director for such work is the engineer, who not 
only has a basic knowledge of the work, but 
whose training and experience lead him to rely 
only upon facts. So far, however, there is not 
in general use any mechanism which will en- 
able the engineer to visualize at once the large 
number of facts that must be comprehended in 
order that he may handle effectively the mana- 
gerial problems that our modern industrial sys- 
tem is constantly presenting. It is one object 
of this book to lay before the public the progress 
we have made in visualizing the problems and 
the available information needed for their 
solution. 



Ill 

EFFICIENCY AND IDLENESS 

What we accomplished in our preparation for 
war and in getting men to the front surprised 
ourselves, and apparently satisfied our allies. 
It was accomplished by the splendid energy and 
tremendous resources of the American people, 
but nobody pretends that we showed any high 
degree of efficiency in doing the work. Our 
expenses were enormous, and we have recon- 
ciled ourselves to their magnitude by saying 
over and over again that nothing counted ex- 
cept winning the war, which in the last analysis 
is true ; but it is also true that excessive expense 
not only did not help us to win the war, but 
rather hindered us in accomplishing this result. 
Our fumbling in war preparation seems to 
indicate that the great campaign for efficiency, 
which has been waged so assiduously in this 
country for the past twenty years, has not ac- 
complished for us all we had led ourselves to 
believe. That we have increased individual ef- 
ficiency and profit-making efficiency, and per- 
haps other kinds of efficiency, is not to be denied. 
That we have attained a high degree of national 



24 ORGANIZING FOR WORK 

efficiency or a high degree of efficiency in the 
production of goods, is nowhere indicated. It 
took the shock of a great war to arouse us to 
the realization that our great prosperity was 
due to something other than our productive ef- 
ficiency. 

Yet surely the long campaign for efficiency 
has been honestly and seriously waged. Why, 
then, have our results been so meager? The 
answer is simple enough and plain. The aim 
of our efficiency has not been to produce goods, 
but to harvest dollars. If we could harvest 
more dollars by producing fewer goods, we 
produced the fewer goods. If it happened that 
we could harvest more dollars by producing 
more goods, we made an attempt to produce 
more goods: but the production of goods was 
always secondary to the securing of dollars. 

In the great emergency created by the war, 
our need was not for dollars but for goods, and 
people who had been trained for the seeking 
of dollars were in most cases not at all fitted 
for the producing of goods. Those who had 
been most successful in acquiring dollars were, 
however, the ones best known as business men, 
and when it was thought we needed a business 
administration, such people, with the best in- 
tentions in the world, offered their services to 
the Federal Government, many at a great sacri- 



EFFICIENCY AND IDLENESS 25 

fice of their own interests. They found, how- 
ever, that for war we needed goods, and that 
dollars were only the means to that end. Then 
they found that unless people knew how to 
produce the goods, dollars were ineffective. 

Another phase of the efficiency movement with 
which we are all so familiar, was the attempt 
to increase the efficiency of the worker, and to 
ignore entirely the idler, because the system of 
cost-keeping generally in vogue made that seem 
the most profitable thing to do. The case was 
worse than this, for not only did the system 
ignore the idler, but it eliminated the inefficient, 
absolutely ignoring the fact that both the in- 
efficient and the idle were going to continue to 
live and be supported, directly or indirectly, by 
the workers. 

The war waked us up to the fact that the 
world was running short of the necessities of 
life, and that the product of even the most 
inefficient was some help. The scheme for the 
selection of the efficient, of which much had 
been made, was now found to need supplement- 
ing by one for forcing the idler to work and 
training the inefficient. 

The great difficulty of installing such a sys- 
tem was that the cost-keeping methods in gen- 
eral vogue indicated that training methods were 
not profitable, for trainers were classed as non- 



26 OEGANIZING FOR WORK 

producers. In spite of this fact, however, the 
war emergency forced us to adopt them, and 
the results were beneficial. The inevitable de- 
duction is that the cost-keeping methods in 
general vogue are fundamentally wrong, and 
that we shall continue to suffer from inefficiency 
until they are corrected. The great error in 
them is the fact that they absolutely ignore the 
expense of idleness. As a matter of fact, it 
costs almost as much to be idle as it does to 
work. This is true whether we consider men 
or machines, or, in other words, labor or capital. 

This leads us at once to two natural ques- 
tions : 

What is our expense for idle labor? 

What is our expense for idle capital? 

Manufacturing concerns pretty generally 
eliminate idle labor as completely as they can 
(many times by discharging workmen who could 
be profitably used if work were planned for 
them). 

They cannot get rid of idle capital so easily, 
for it is tied up in machines that cannot be sold. 
The only possible way to eliminate idle capital, 
then, is to put it to work. The first step toward 
putting it to work is to find out why it is idle. 
As soon as this is done, means for putting it to 
work begin to suggest themselves. Our cost- 
keeping system, to meet the present and future 



EFFICIENCY AND IDLENESS 27 

emergency, must not content itself with charg- 
ing to the product all expenses, but must charge 
to the product only that expense that helped to 
produce it, and must show the expenses that did 
not produce anything, and their causes. If this 
fundamental change is made in our cost-keeping 
methods, our viewpoint on the subject of pro- 
duction changes, with the result that we devote 
our attention first to the elimination of idleness, 
both of capital and labor. 



IV 
PRODUCTION AND COSTS 

Manufactueees in general recognize the vital 
importance of a knowledge of the cost of their 
product, yet but few of them have a cost system 
on which they are willing to rely under all con- 
ditions. 

While it is possible to get quite accurately the 
amount of material and labor used directly in 
the production of an article, and several systems 
have been devised which accomplish this result, 
there does not yet seem to be in general use 
any system of distributing that portion of the 
expense known variously as indirect expense, 
burden, or overhead, in such a manner as to 
make us have any real confidence that it has 
been done properly. 

There are in common use several methods 
of distributing this expense. One is to dis- 
tribute to the product the total indirect ex- 
pense, including interest, taxes, insurance, etc., 
according to the direct labor. Another is to 
distribute a portion of this expense according 
to direct labor, and a portion to machine hours. 

28 



PRODUCTION AND COSTS 29 

Other methods distribute a certain amount of 
this expense on the material used, etc. Most of 
these methods contemplate the distribution of 
all of the indirect expense of the manufacturing 
plant, however much it may be, on the output 
produced, no matter how small it is. 

If the factory is running at its full, or normal, 
capacity, this item of indirect expense per unit 
of product is usually small. If the factory is 
running at only a fraction of its capacity, say 
one-half, and turning out only one-half of its 
normal product, there is but little change in the 
total amount of this indirect expense, all of 
which must now be distributed over half as 
much product as previously, each unit of 
product thereby being obliged to bear ap- 
proximately twice as much expense as pre- 
viously. 

When times are good, and there is plenty of 
business, this method of accounting indicates 
that our costs are low; but when times become 
bad and business is slack, it indicates high costs 
due to the increased proportion of burden each 
unit has to bear. During good times, when there 
is a demand for all the product we can make, 
it is usually sold at a high price and the element 
of cost is not such an important factor. When 
business is dull, however, we cannot get such 
a high price for our product, and the question 



30 ORGANIZING FOR WORK 

of at how low a price we can afford to sell the 
product is of vital importance. Our cost sys- 
tems, as generally operated at present, show 
under such conditions that our costs are high 
and, if business is very bad, they usually show 
us a cost far greater than the amount we can 
get for the goods. In other words, our present 
systems of cost accounting go to pieces when 
they are most needed. This being the case, 
many have felt for a long time that there was 
something radically wrong with the present 
theories on the subject. 

As an illustration, I may cite a case which 
recently came to my attention. A man found 
that his cost on a certain article was thirty 
cents. When he found that he could buy it for 
twenty-six cents, he gave orders to stop manu- 
facturing and to buy it, saying he did not under- 
stand how his competitor could sell at that 
price. He seemed to realize that there was a 
flaw somewhere, but he could not locate it. I 
asked him of what his expense consisted. His 
reply was, labor ten cents, material eight cents, 
and overhead twelve cents. I then asked if he 
was running his factory at full capacity, and 
got the reply that he was running it at less than 
half its capacity, possibly at one-third. The 
next question was : "What would be the overhead 
on this article if the factory were running full? 



PRODUCTION AND COSTS 31 

The reply was that it would be about five cents. 
I suggested that in such a case the cost would 
be only twenty-three cents. The possibility 
that his competitor was running his factory 
full suggested itself at once as an explana- 
tion. 

The next question that suggested itself was 
how the twelve cents overhead, which was 
charged to this article, would be paid if the 
article was bought. The obvious answer was 
that it would have to be distributed over the 
product still being made, and would thereby 
increase its cost. In such a case it would prob- 
ably be found that some other article was cost- 
ing more than it could be bought for; and, if 
the same policy were pursued, the second article 
should be bought, which would cause the re- 
maining product to bear a still higher expense 
rate. If this policy were carried to its logical 
conclusion, the manufacturer would be buying 
everything before long, and be obliged to give 
up manufacturing entirely. 

The illustration which I have cited is not an 
isolated case, but is representative of the prob- 
lems before a large class of manufacturers, who 
believe that all of the expense, however large, 
must be carried by the output produced, how- 
ever small. This theory of expense distribu- 
tion indicates a policy which in dull times would, 



32 ORGANIZING FOR WORK 

if followed logically, put many manufacturers 
out of business. In 1897 the plant of which I 
was superintendent was put out of business by 
just this kind of logic. It never started up 
again. 

Fortunately for the country, American 
people as a whole will finally discard theories 
which conflict with common sense; and, when 
their cost figures indicate an absurd conclusion, 
most of them will repudiate the figures. A cost 
system, however, which fails us when we need 
it most, is of but little value and it is impera- 
tive for us to devise a theory of costs that will 
not fail us. 

Most of the cost systems in use, and the 
theories on which they are based, have been 
devised by accountants for the benefit of finan- 
ciers, whose aim has been to criticize the fac- 
tory and to make it responsible for all the short- 
comings of the business. In this they have suc- 
ceeded admirably, largely because the methods 
used are not so devised as to enable the superin- 
tendent to present his side of the case. 

One of the prime functions of cost-keeping 
is to enable the superintendent to know whether 
or not he is doing the work he is responsible 
for as economically as possible, a function which 
is ignored in the majority of cost systems now 
in general use. Many accountants who make 



PRODUCTION AND COSTS 33 

an attempt to show it, are so long in getting 
their figures in shape that they are practically 
worthless for the purpose intended, the pos- 
sibility of using them having passed. 

In order to get a correct view of the subject 
we must look at the matter from a different and 
broader standpoint. The following illustration 
may put the subject in its true light: 

Let us suppose that a manufacturer owns 
three identical plants, of an economical operat- 
ing size, manufacturing the same article, — one 
located in Albany, one in Buffalo, and one in 
Chicago — and that they are all running at their 
normal capacity and are managed equally well. 
The amount of indirect expense per unit of 
product would be substantially the same in each 
of these factories, as would be the total cost. 
Now suppose business suddenly falls off to one- 
third of its previous amount and the manu- 
facturer shuts down the plants in Albany and 
Buffalo, and continues to run the one in Chicago 
exactly as it has been run before. The product 
from the Chicago plant would have the same 
cost that it previously had, but the expense of 
carrying two idle factories might be so great 
as to take all the profits out of the business ; in 
other words, the profit made from the Chicago 
plant might be offset entirely by the loss made 
by the Albany and Buffalo plants. 



34 ORGANIZING FOR WORK 

If these plants, instead of being in different 
cities, were located in the same city, a similar 
condition might also exist in which the expense 
of the two idle plants would be such a drain on 
the business that they would offset the profit 
made in the going plant. 

Instead of considering thes^ three factories 
to be in different parts of one city, they might 
be considered as being within the same yard, 
which would not change the conditions. Finally, 
we might consider that the walls between these 
factories were taken down and that the three 
factories were turned into one plant, the out- 
put of which had been reduced to one-third of 
its normal volume. In such case it would be 
manifestly proper to charge to this product 
only one-third of the indirect expense charged 
when the factory was running full. 

If the above argument is correct, we may 
state the following general principle: The in- 
direct EXPENSE CHABGEABLE TO THE OUTPUT OP 
A EACTOBY SHOULD BEAR THE SAME EATIO TO THE 
INDIRECT EXPENSE NECESSABY TO BUN THE FACTOBY 
AT NOBMAIi CAPACITY, AS THE OUTPUT IN QUESTION 
BEARS TO THE NOEMAL OUTPUT OP THE PAC- 
TOBY. 

This theory of expense distribution, which 
was forced upon us by the abrupt change in 
conditions brought on by the war, explains 



PRODUCTION AND COSTS 35 

many things whicli were inexplicable under the 
older theory, and gives the manufacturer uni- 
form, or at least comparable, costs as long as 
the methods of manufacture do not change. 

Under this method of distributing expense 
there will be a certain amount of undistributed 
expense remaining whenever the factory runs 
below its normal capacity. A careful considera- 
tion of this item will show that it is not charge- 
able to the product made, but is a business ex- 
pense incurred on account of maintaining a cer- 
tain portion of the factory idle, and chargeable 
to profit and loss. Many manufacturers have 
made money in a small plant, then built a large 
plant and lost money for years afterward, 
without quite understanding how it happened. 
This method of figuring affords an explana- 
tion and warns the manufacturer to do every- 
thing possible to increase the efficiency of 
the plant he has, rather than to increase its 
size. 

This theory explains why some of our large 
combinations of manufacturing plants have not 
been as successful as was anticipated, and why 
the small plant is able to compete successfully 
and make money, while the combinations are 
only just holding their own. 

The idea so prevalent a few years ago, that 
in the industrial world money is the most power^ 



36 ORGANIZING FOR WORK 

ful factor, and that if we only had enough 
money, nothing else would matter very much, 
is beginning to lose its force, for it is becom- 
ing clear that the size of a business is not so 
important as the policy by which it is directed. 
If we base our policy on the idea that the cost 
of an article can only legitimately include the 
expense necessarily incurred either directly or 
indirectly in producing it, we shall find that 
our costs are much lower than we thought, and 
that we can do many things which under the 
old method of figuring appeared suicidal. 

The view of costs so largely held, namely, that 
the product of a factory, however small, must 
bear the total expense, however large, is re- 
sponsible for much of the confusion about costs 
and hence leads to unsound business poli- 
cies. 

If we accept the view that the article produced 
shall bear only that portion of the indirect ex- 
pense needed to produce it, our costs will not 
only become lower, but relatively far more con- 
stant, for the most variable factor in the cost 
of an article under the usual system of account- 
ing has been the "overhead," which has varied 
almost inversely as the amount of the product. 
This item becomes substantially constant if the 
"overhead" is figured on the normal capacity 
of the plant. 



PRODUCTION AND COSTS 37 

Of course a method of cost-keeping does not 
diminish the expense, but it may show where the 
expense properly belongs, and give a more cor- 
rect understanding of the business. 

In our illustration of the three factories, the 
cost in the Chicago factory remained constant, 
but the expense of supporting the Buffalo and 
Albany factories in idleness was a charge 
against the business, and properly chargeable 
to profit and loss. If we had loaded this ex- 
pense on the product of the Chicago factory, the 
cost of the product would probably have been 
so great as to have prevented our selling it, 
and the total loss would have been greater still. 

When the factories are distinctly separate, 
few people make such a mistake, but where a 
single factory is three times as large as is 
needed for the output, the error is frequently 
made, with results that are just as misleading. 

As a matter of fact it seems that the attempt 
to make a product bear the expense of plant not 
needed for its production is one of the most 
serious defects in our industrial system today, 
and farther reaching than the differences be- 
tween employers and employees, for if it were 
removed, most of the difficulties would vanish. 

The problem that faces us is first to find just 
what plant or part of a plant, is needed to pro- 
duce a given output, and then to determine the 



38 ORGANIZING FOR WORK 

"overhead" expense needed to operate that 
plant or portion of that plant. This is primarily 
the work of the manufacturer, or engineer, and 
only secondarily that of the accountant, who 
must, as far as costs are concerned, be the 
servant of the superintendent. 

In the past, in almost all cost systems the 
amount of "overhead" to be charged to the 
product, when it did not include all the "over- 
head," was more ot less a matter of judgment. 
According to the theory now presented, it is 
not a matter of judgment, but can be determined 
with an accuracy depending upon the knowledge 
the manufacturer has of the business. Follow- 
ing this line of thought it should be possible for 
a manufacturer to calculate just what plant and 
equipment he ought to have, and what the staff 
of officers and workmen should be to turn out a 
given product. If this can be correctly done, 
the exact cost of a product can be predicted. 
Such a problem cannot be solved by a cost ac- 
countant without shop knowledge, but is pri- 
marily a problem for an engineer whose knowl- 
edge of materials and processes is essential for 
its solution. 

In any attempt to solve a problem of this 
type, one of the most important functions we 
need a cost system to perform is to keep the 
superintendent continually advised as to how; 



PRODUCTION AND COSTS 39 

nearly he is realizing the ideal set, and to point 
out where the shortcomings are. 

Many of us are accustomed to this viewpoint 
when we are treating operations singly, but 
few have as yet made an attempt to consider 
that this idea might be applied to a plant as a 
whole, except when the processes of manufac- 
ture are simple and the products few in number. 
When, however, the processes become numerous 
or complicated, the necessity for such a cheek 
becomes more urgent, and the cost-keeper who 
performs this function becomes an integral part 
of the manufacturing system, and acts for the 
superintendent, as an inspector, who keeps him 
advised at all times of the quality of his own 
work. 

This conception of the duties of a cost-keeper 
does not at all interfere with his supplying the 
financier with the information he needs, but 
insures that the information shall be correct, 
for the cost-keeper is continually making a com- 
parison for the benefit of the superintendent, 
of what has been done with what should have 
been done. Costs are valuable only as com- 
parisons, and comparisons are of little value 
unless we have a standard, which it is the func- 
tion of the engineer to set. 

Lack of reliable cost methods has, in the past, 
been responsible for much of the uncertainty so 



40 ORGANIZING FOR WORK 

prevalent in our industrial policies; but with 
a definite and reliable cost method, which en- 
ables us to differentiate between what is lost 
in manufacturing and what is lost in business, 
it will usually become easy to define clearly the 
proper business policy. 



V 

VALUE OF AN INDUSTRIAL PROPERTY 
DEPENDS ON ITS PRODUC- 
TIVE CAPACITY 

In the summer of 1916 a professor of political 
economy in one of our most conservative uni- 
versities admitted to me that the economists 
had been obliged to modify many of their views 
since the outbreak of the European war. My 
comment was, that the professors of political 
economy were not the only people who had been 
obliged to modify their economic and industrial 
views. 

The war taught everybody something. Mili- 
tary methods have undergone radical changes, 
but industrial methods are undergoing changes 
which promise to be even more radical than the 
military developments have been. 

If there is any one thing which has been made 
clear by the war it is, that the most important 
asset which either a man or nation can have is 
the ABILITY TO DO THINGS. Our industrial and 
economic developments have in the past been 
largely based on the theory that the most im- 

41 



42 ORGANIZING FOR WORK 

portant quality a man can possess is his ability 
to buy things ; but the war has distinctly shown 
that this quality is secondary to the ability to 
do things. The recognition of this fact is hav- 
ing a most far-reaching effect, for it makes 
clear that the real assets of a nation are 
properly equipped industries and men trained 
to operate them efficiently. The money which 
has been spent on an industrial property, 
whether it has been spent wisely or unwisely, 
and the amount of money needed to reproduce 
it are both secondary in importance to the 
ability of that plant to accomplish the object 
for which it was constructed, and hence cannot 
be given the first place in determining the value 
of the property. 

Inasmuch as every industrial plant is built 
to produce some article of commerce at a cost 
which w^ll enable it to compete with other pro- 
ducers, the value of a plant as a producing unit 
must depend upon its ability to accomplish the 
object for which it was created. 

To determine the value of an industrial 
property, therefore, we must be able to know 
with accuracy the cost at which it can produce 
its product, and the amount it can produce. To 
compare two factories on this basis, their cost 
systems must be alike ; for, if there is a lack of 
agreement as to methods of cost accounting. 



VALUE OF INDUSTRIAL PEOPERTY 43 

there will necessarily be a lack of agreement as 
to the estimated value of the properties. There 
are many methods of cost accounting ; but there 
are only two leading theories as to what cost 
consists of. They are: 

First, that the cost of an article must include 
all the expense incurred in producing it, whether 
such expense actually contributed to the der 
sired end or not. 

Second, that the cost of an article should in- 
clude only those expenses actually needed for 
its production, and any other expenses incurred 
by the producers for any reason whatever must 
be charged to some other account. 

The first theory would charge the expense 
of maintaining in idleness that portion of a 
plant which was not in use to the cost of the 
product made in that portion of the plant which 
was in operation ; while the second theory would 
demand that such an expense be a deduction 
from profits, or at least be charged to some 
other account. When plants are operated at 
their full capacity, both theories give the same 
cost. If, however, they are operated at less 
than their full capacity, the expense of carrying 
the idle machinery is, under the first theory, in- 
cluded in the cost of the product, making the 
cost greater; while under the second theory, 
this expense of idle machinery is carried in a 



44 ORGANIZING FOR WORK 

separate account and should be deducted from 
the profits, leaving the cost constant. It is 
most interesting to note that, when costs are 
figured on the second basis, great activity im- 
mediately ensues to determine why machinery 
is idle, and to see what can be done to put it 
in operation. It is realized at once that this 
machinery had better be operated, even if 
no profits are obtained from its operation 
and only the expense, or even part of the 
expense, of owning and maintaining it is 
earned. 

Fig. 1 illustrates this subject most clearly, 
and is an indication of the efficiency of the 
management as contrasted with that of the 
workmen, about which we hear so much. It is 
interesting to note that charts of this nature, 
which are being made monthly in several large 
plants, have already had a very educational 
influence on the managers of those plants. They 
show that idle machinery which cannot be used 
should be disposed of, and the money received, 
and the space occupied, put to some useful 
purpose. 

A little consideration of the method of get- 
ting the data on this chart will make its value 
more apparent. It is a logical outgrowth of the 
previous chapter on Production and Costs, and 
is based on the fact that simple ownership of a 



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VALUE OP INDUSTRIAL PROPERTY 47 

machine costs money, inasmuch as it takes away 
from available assets. For instance, if we buy 
a machine for $1,000 we lose the interest on that 
$1,000, say at five per cent per year, then we 
have taxes on the machine at two per cent, and 
insurance of one per cent. Further, the machine 
probably depreciates at a rate of twenty per 
cent per year, and we must pay $50 or more 
per year for the rent of the space it occupies. 
All these expenses, together $330, go on whether 
we use the machine or not. Thus, the simple 
fact of our having bought this machine and kept 
it takes from our available assets approximately 
one dollar per day. 

If now the cause for idleness is ascertained 
each day we can find the expense of each cause 
of idleness as shown on the chart. That part 
which is due to lack of orders points out that 
our selling policy is wrong, or that the plant 
is larger than it should be — ^in other words, 
that somebody in building the plant has over- 
estimated the demand. It is clear, however, 
that no conclusion should be based on the figures 
for one month, but on the results for a series 
of months during which the problem has been 
carefully studied. If a mistake has been made 
in building too large a plant, an effort should 
be made to determine the proper disposal, or 
utilization, of the excess, in order that the ex- 



48 ORGANIZING FOR WORK 

pense of idleness may be taken care of, even if 
no profit can be made. 

The next column shows the expense due to a 
lack of help, which means that we must in- 
vestigate the labor policy. 

The next column, showing the expense due to 
lack of, or poor, material, is an indication of 
the efficiency of the purchasing policy and store- 
keeping system. The next column reflects the 
repair and maintenance department. 

If in any case the expense of idleness is 
greater than can be attributed to all of these 
causes together, it must go in the last column 
as poor planning. 

We can hardly claim that such a chart gives 
ns a measure of the efficiency with which the 
above functions are performed, but it certainly 
does give us an indication of that efficiency. In 
several cases, the first of such charts gotten 
out resulted in the scrapping of machinery 
which had been idle for years. The space thus 
saved was used for a purpose for which the 
superintendent had felt he needed a new build- 
ing. In another case it resulted in the renting 
of temporarily idle machinery at a rate which 
went far toward covering the expense of carry- 
ing that machinery. 

Under the first system of cost-keeping the 
facts brought out by this method are not avail- 



VALUE OP INDUSTRIAL PROPERTY 49 

able and the increased cost that a reduced out- 
put must bear is a great source of confusion 
to the salesman. The newer system with its 
constant cost shows that non-producing ma- 
chinery is a handicap to the industry of a 
company, just as workmen who do not serve 
some useful purpose in a plant, or industry, are 
a handicap to that plant or industry. Similarly, 
plants or people, therefore, who do not serve 
some useful purpose to a community are a 
handicap to that community, for idle plants 
represent idle capital, and idle people are not 
producers but consumers only. The warring 
nations recognized these facts, and put both 
idle plants and idle people to work wherever 
possible. 

The statements so far made concern princi- 
pally the operation of industrial plants and the 
production of articles of commerce; but they 
are none the less true concerning the construc- 
tion of industrial plants. We may ask the same 
question about construction that we ask about 
operation; for instance, should the "cost" of a 
railroad include all the money spent by the 
people engaged in building it, or should it in- 
clude only such money as contributed to the 
building of the road? As an illustration, is the 
cost of a piece of road which was built and 
then abandoned for a superior route before 



50 ORGANIZING FOR WORK 

being used a part of the cost of the railroad 
built, or is it an expense due to improper judg- 
ment on the part of the builders? I 

I am not discussing the question as to whether 
the public should be called upon to pay interest 
on the money uselessly spent through improper 
judgment, but I do think that in all construc- 
tion it should be possible to separate those ex- 
penses which contributed to the desired result 
from those which did not so contribute. A com- 
parison of these amounts will give a measure 
of the efficiency of the builders. On this knowl- 
edge, proper action can ultimately be taken. 

Still another factor enters into the value of 
a "going plant." We all have known cases 
where the same plant operated under one 
manager was a failure, and under another a 
very decided success. The value of a going 
plant, therefore, consists of two elements; 
namely, the value of the physical real estate and 
equipment, and the value of the organization 
operating it. In considering the value of an 
organization we should realize that it lies not 
so much in the personality of the managers or 
leaders (who may die or go elsewhere) as in 
the permanent results of their training and 
methods, which should go on with the business, 
and are therefore an asset and not an accident. 

"We have the authority of no less a person 



VALUE OF INDUSTRIAL PROPERTY 51 

than Andrew Carnegie, for the statement that 
his organizations were of more value to him 
than his plants. Before we can determine ex- 
actly the value of a going plant, therefore, we 
must find some means of measuring the value of 
the organization which operates it, for this is 
an integral factor in the valuation of an in- 
dustrial property, which is just as real as the 
more tangible brick and mortar of which build- 
ings are composed. 

Our charts showing the expense of idleness 
give us at least a rough indication of this 
value, for they show the expense of inefficient 
management. 



VI 

AN EXTENSION OF THE CREDIT SYS- 
TEM TO MAKE IT DEMOCRATIC 

Looking backward over the great war, we have 
the opportunity better to understand and evalu- 
ate the different phenomena which were de- 
veloped by it. Many incidents which seemed 
natural and in a measure unimportant when 
they took place, had a profound effect upon the 
outcome of the war, and promise to affect still 
more profoundly the period to follow. 

Perhaps no one incident was more significant 
and fraught with greater consequences to the 
civilization of the world than the transfer, soon 
after we entered the war, of the credit center 
from Wall Street to Washington, This trans- 
fer took place without creating any stir, with- 
out any special opposition, and with the general 
approval of the community at large. We had 
just got the Federal Reserve Banking System 
into operation, and it had enormously increased 
our power as a nation to dispense credit, yet 
notwithstanding the most advantageous position 
in which we had thus been placed, the expert 

63 



THE CREDIT SYSTEM 53 

financiers of Wall Street submitted without 
remonstrance to the transfer of the whole credit 
center to Washington, where it was adminis- 
tered by men who, compared with the "giants" 
of Wall Street, were mere amateurs. 

Why was it necessary for this transfer to be 
made, and why did Wall Street consent to it? 
Surely if it had been within the possibilities of 
Wall Street to finance the war, a serious re- 
monstrance at least would have been raised 
to this transfer of the credit center. The New 
York bankers not only did not remonstrate, but 
in a most patriotic manner offered their services 
to help the comparatively inexperienced men in 
Washington handle their great undertaking. 

If it had been possible for Wall Street to 
finance the war, it is inconceivable that the 
bankers of New York should have allowed the 
work to be taken over by other hands. Why, 
then, was it possible for Washington to do what 
was impossible for Wall Street? The answer 
to this question is not only very simple, but is 
indicative of the flaw in our whole business 
system. The financial methods of Wall Street 
were designed to operate only when we con- 
ducted "business as usual;" hence their 
mechanism could give credit only to those who 
had tangible securities. They had no mecha- 
nism for extending credit to men who, although 



54 ORGANIZING FOR WORK 

they had few or no tangible assets, might have 
tremendous productive capacity. 

Because the war demanded that the nations 
as a whole produce goods to the utmost, we 
were obliged to invent a new kind of finance, in 
which the production of goods would be the 
first object. There was no tradition among the 
bankers of this country for financing any propo- 
sition except on the basis of tangible assets, 
and for the sole purpose of making profits. 
In many cases men who knew how to build 
ships or to make g^ns did not have tangible 
assets in sufficient quantity to satisfy the usual 
banking system. It was therefore necessary for 
the Federal Government to initiate a finance 
which was new, at least in this country : namely, 
that of extending credit to a man according to 
his productive capacity. There was no estab- 
lished mechanism for doing this, but it had to 
be done, and we did it, in a rather haphazard 
and ineffective manner. Nevertheless, the re- 
sults have justified the venture, and the possi- 
bilities of a new credit system of vastly greater 
potentiality are opening themselves to us as 
soon as the mechanism for its operation shall 
have been developed. 

A few of the great leaders of industry have 
understood in a general way this kind of finance. 
Among them may be mentioned Mr. Andrew 



THE CREDIT SYSTEM 55 

Carnegie, who said he valued his organization 
more than his plants; and Mr. Henry Ford. 
Mr. Carnegie, through an understanding of 
this general principle, was able to dominate the 
steel industry; and Mr. Ford, by the same 
token, became the greatest automobile manu- 
facturer in the world. The war has backed up 
Mr. Carnegie and Mr. Ford by proving that pro- 
ductive capacity is enormously more important 
than wealth, but inasmuch as our credit sys- 
tem has been based on "tangible assets," and 
not on productive capacity, there has been 
developed as yet no generally accepted mecha- 
nism for measuring the value of productive 
capacity. 

The cost and accounting systems in general 
vogue take note only of what are called the 
"tangible assets," which are necessarily static, 
showing only potentialities. They make but 
little attempt to find out how these assets are 
being used. The reason undoubtedly is that they 
see such assets from a sales standpoint ; in other 
words, our economic system is still patterned 
after the one which was originally built up to 
serve the needs of buying and selling. Pro- 
ductive capacity, on the other hand, can be 
measured only by taking account of what is 
happening. When we begin to regard matters 
from this standpoint, the so-called "tangible 



56 ORGANIZING FOR WORK 

assets" are not nearly so important as the use 
being made of them, or the amount of product 
being turned out. In other words, the modern 
accounting system which deals with production 
must give us a picture of what is happening, 
as well as of the mechanism which causes the 
happenings. It must be based on charts which 
show what progress is taking place, and which 
bear the same relation to statistics as a moving 
picture i51m does to a photograph. 

The question naturally asked is : If the above 
statements are correct, why have we not realized 
their correctness before? It took a great war, 
which required us to put forth all our strength, 
to wake us up to their importance. They have 
been increasing in importance for a number of 
years, and our failure to recognize this fact 
was one of the factors in producing the great 
catastrophe through which we have just passed. 

For many years previous to the outbreak of 
the great war, financiers told us there couldn't 
be any war, because the bankers wouldn't stand 
for it. They thought money controlled the 
world. Books were written to prove that we 
could have no more war. The idea of war was 
called "the great illusion." When this "illu- 
sion" was realized, they still maintained that 
the war could last only a few months. Never- 
theless it lasted over four years, to the great 



THE CREDIT SYSTEM 57 

confusion of our economists and theorists. We 
all know now that it was supported, not by 
finance, but by the grand scale production of 
modern industry. It stopped, not for lack 
of money, but for lack of means to live and 
fight with. We see, then, without any pos- 
sible shadow of doubt, that inasmuch as pro- 
duction was the controlling factor in the 
great war, it will hereafter be the controlling 
factor in the world, and that nation which 
first recognizes the fundamental fact that pro- 
duction, and not money, must be the aim of our 
economic system, will, other things being equal, 
exert a predominating influence on the civiliza- 
tion, which is to be built up in the period of re- 
construction upon which we are now entering. 

Our immediate problem, then, is to develop a 
credit system that will enable us to take ad- 
vantage of all the productive forces in the com- 
munity. Such a credit system must not only be 
able to finance those who have ownership, but 
also those who have productive capacity, which 
is vastly more important. This is equivalent 
to saying that our wealth in men is more im- 
portant than our wealth in materials. So far 
we have never used this force to more than a 
small fraction of its capacity, simply for the 
reason, as previously stated, that the origina- 
tors of our financial system were traders and 



58 ORGANIZING FOR WORK 

not producers. Now, however, when the su- 
preme importance of the producer has been 
recognized, we must enlarge our credit system 
in such a manner as to enable us to take full 
advantage of his possibilities; in other words, 
we must make it democratic. 

To meet the exigencies of war the Federal 
Government had no hesitation in inaugurating 
such a finance, for the benefit of the community. 
"While it was done in a new and crude manner, 
we recognize that it was in the main successful. 
We shall soon find that there are exigencies in 
times of peace also that could be helped by a 
similar financial method. Some nations are 
going to see this, and realizing that the credit 
system of the country must always be available 
for the benefit of the community, take such ac- 
tion as to accomplish that result, and thereby 
force others to do the same. Through the War 
Finance Corporation Act (amended) section 
21, March 3, 1919, we have already taken such 
action with regard to exports. During the war, 
we financed necessary production with public 
money; now in time of peace we finance an- 
other essential activity with public money. This 
is a most encouraging beginning. Can we not 
make public money available for the financing 
of all socially necessary activities whether of 
war or peace? 



THE CREDIT SYSTEM 59 

In the past what a man could do was limited 
by his financial and social condition; hence 
many of our most capable men were severely 
restricted in their activities. To be sure, a few 
have been able to rise above their restrictions 
— a railsplitter becomes the president of a great 
republic, and a harness-maker the first presi- 
dent of another. These examples, however, 
only illustrate the possibilities that are unuti- 
lized, because our credit system has not been 
democratic. 



vn 

ECONOMICS OF DEMOCRACY 

The prime function of a science is to enable 
us to anticipate the future in the field with 
which it has to deal. Judged by this standard, 
economic science has in the past been practically 
worthless; for it absolutely failed to warn us 
of the greatest catastrophe that has ever be- 
fallen the civilized world. Further, when the 
catastrophe burst upon us, economists and 
financiers persisted in belittling it by insisting 
that the great war could last only a few months. 
Are they any nearer the truth in their theories 
of labor and capital, protection and free trade, 
or taxation? 

When they talk about preparedness, what do 
they mean? Do they mean that we must so 
order our living as to prevent another such 
catastrophe, or do they simply mean that we 
must aim to he strong when the next catastrophe 
comes? 

The latest economic thought indicates clearly 
that the fundamentals of both kinds of pre- 
paredness are the same, and that preparation 

60 



ECONOMICS OP DEMOCRACY 61 

for the former is the best basis on which to 
establish preparation for the latter. True 
preparedness, then, would seem to consist in a 
readjustment of our economic conditions with 
the object of averting another such catastrophe. 

In considering this subject we must realize 
that: 

The Nation reflects its leaders. 

The Army reflects its general. 

The Factory reflects its manager. 

In a successful industrial nation, the in- 
dustrial leaders must ultimately become the 
leaders of the nation. The condition of the in- 
dustries will then become a true index of the 
condition of the nation. If the industries are 
not properly managed for the benefit of the 
whole community, no amount of military pre- 
paredness will avail in a real war. The military 
preparations of Germany, vast as they were, 
would have collapsed in six months had it not 
been for the social and industrial conditions on 
which they were based. 

Army oflScers and others have told us most 
emphatically what military preparedness is, 
and how to get it. Innumerable papers have 
been written on industrial preparedness, and 
people in general are getting a pretty clear idea 
of what we mean by the term. Moreover, many 
are beginning to appreciate our lack in this 



62 ORGANIZING FOR WORK 

respect. Figs. 2, 3, 4, and 5 illustrate what this 
means. 

Admittedly these pictures are not typical of 
our industries, but they do represent a condi- 
tion which is all too common, and which must 
be corrected if we are to be prepared either for 
peace or for war. 

Our record in the production of munitions, 
especially of ammunition, is not one to be proud 
of. Note what Mr. Bascom Little, President of 
the Cleveland, Ohio, Chamber of Commerce, and 
Chairman of the National Defense Conunittee 
of the Chamber of Commerce of the United 
States, said in the spring of 1916 : 

"The work of Mr. CoiBn's committee has seemed 
to us very important, and so clearly related, in such 
practical ways, to what the business organizations 
of the country are trying to do to further national 
defense, that those with which I am connected im- 
mediately formed a union with the committee on 
learning of its work. 

"The thing that has stirred up the business men 
of the Middle West during the past eighteen months 
has been the lesson they have learned in the making 
of war materials. It points a very vivid moral to 
all our people. It all looked very easy when it 
started a year and a half ago. The plant with which 
I am associated in Cleveland got an order for 250,000 
three-inch high explosive shells. It was a simple 
enough looking job — just a question of machining. 




Fig. 2. — ^Unpkepaked 




Fig. 3. — Prepared 



Two views of the same shop doing substantially the same work. 
The lower picture was taken about a year after the upper from 
a slightly different viewpoint. 



ECONOMICS OP DEMOCRACY 63 

The forgings were shipped to us and we were to finish 
and deliver. It began to dawn on iis when the 
forgings came that this whole order, that looked so 
big to us, was less than one day's supply of shells 
for France or England or Russia; and we felt that 
in eight months by turning our plant, which is a 
first-class machine shop, onto this job we could fill 
the order. In a little while we got up against the 
process of hardening. That — and mark what I say 
— was fourteen months ago. To date we have shipped 
and had accepted 130,000 shells, and those, about half 
our order, are not complete. They still have to be 
fitted by the fuse maker, then fitted in the brass 
cartridge cases with the propelling charge, and some- 
where, sometime, maybe, they will get on the battle- 
field of Europe. Up to the present, none of them 
has arrived there. 

"Now this is the situation in a high-class efficient 
American plant. This is what happened when it 
turned to making munitions of war. The same thing 
has occurred in so many Middle Western plants, that 
their owners have made up their minds that if they 
are ever going to be called upon for service to their 
own country, they must know more about this busi- 
ness. They feel that they are now liabilities, to the 
nation, and not assets in case of war. Proud as we 
may fee of our industrial perfection, it has not worked 
Jiere, and the country — particularly you in the East 
— may as well know it." 

The comment on this will be that it is three 
years old, and that we have made great ad- 



64 ORGANIZING FOR WORK 

vances since then. In reply I can only say that 
if we have made marked advances I have been 
utterly unable to discover them. 

The most casual investigation into the 
reasons why so many of the munition manu- 
facturers have not made good, reveals the fact 
that their failure is due to lack of managerial 
ability rather than to any other cause. With- 
out efficiency in management, efficiency of the 
workmen is useless, even if it is possible to get 
it. "With an efficient management there is but 
little difficulty in training the workmen to be 
efficient. I have proved this so many times and 
so clearly that there can be absolutely no doubt 
about it. Our most serious trouble is incompe- 
tency in high places. As long as that remains 
uncorrected, no amount of efficiency in the work- 
men will avail very much. 

The pictures by which this chapter is illus- 
trated do not show anything concerning the 
efficiency of the individual workman, but they 
are a sweeping condemnation of the inefficiency 
of those responsible for the management, and 
illustrate the fact, so well known to many of us, 
that our industries are suffering from lack of 
competent managers, — which is another way 
of saying that many of those who control our 
industries hold their positions, not through their 
ability to accomplish results, but for some other 




Fig. 4. — Unpkepabed 




Fig. 5. — Pbepaeed 



Two views of the same shop doing substantially the same work, 
taken from the same point. The lower view was taken about a 
year after the upper. 



ECONOMICS OP DEMOCRACY 65 

reason. In other words, industrial control is 
too often based on favoritism or privilege, 
rather than on ability. This hampers the 
healthy, normal development of industrialism, 
which can reach its highest development only 
when equal opportunity is secured to all, and 
when all reward is equitably proportioned to 
service rendered. In other words, when in- 
dustry becomes democratic. 

We are, therefore, brought face to face with 
a form of preparedness which is even more 
fundamental than the Industrial Preparedness 
usually referred to, and I am indebted to Mr. 
W. N. Polakov for the name "Social Prepared- 
ness," which means the democratization of in- 
dustry and the establishment of such relations 
among the citizens themselves, and between 
the citizens and the government, as will 
cause a hearty and spontaneous response on 
the part of the citizens to the needs of the 
country. 

At the breaking out of the great war in 
Europe, the thing which perhaps surprised us 
most was the enthusiasm with which the 
German people entered into it. Hardly less 
striking was the slowness with which the rank 
and file of Englishmen realized the problems 
they were up against, and their responsibilities 
concerning them. 



66 ORGANIZING FOR WORK 

A short consideration of what happened in 
Germany in the last half of the nineteenth cen- 
tury, or before the war, may throw some light on 
this subject. Bismarck and Von Moltke, follow- 
ing the lead of Frederick the Great, believed and 
taught that the great industry of a country was 
War. In other words, that it was more profit- 
able to take by violence from another than to 
produce. The history of the world, until the 
development of modern industrialism, seemed 
to bear out that theory. Bismarck argued that 
to be strong from a military standpoint the 
nation must have a large number of well 
trained, intelligent, healthy men, and he set 
about so ordering the industries of Germany 
as to produce that result. 

Military autocracy forced business and in- 
dustry to see that men were properly trained 
and that their health was safe-guarded. In 
other words, because of the necessity of the 
military state for such men, the state saw to it 
that industry was so organized as to develop 
high-grade men, with the result that a kind of 
industrial democracy was developed under the 
paternalistic guidance of an autocratic military 
party. 

Under such influences, the increase of educa- 
tion and the development of men went on apace, 
and were soon reflected in an industrial system 



ECONOMICS OF DEMOCRACY 67 

which, bade fair to surpass any other in the 
world. 

In England, on the other hand, the business 
system was controlled by an autocratic and 
"socially irresponsible finance," which, to a 
large extent, disregarded the interest of the 
workman and of the community. At the break- 
ing out of the war, the superiority of the in- 
dustries of Germany over the industries of 
England was manifest, not only by the feeling 
of the people, but by their loyalty to the Na- 
tional Government, which had so cared for, or 
disregarded, their individual welfare. This su- 
periority became so rapidly apparent, that in 
order to make any headway against Germany, 
England was obliged to imitate the methods 
which had been developed in Germany, and to 
say that the industries (particularly the muni- 
tion factories) which were needed for the salva- 
tion of the country, must serve the coumtry and 
not the individual. The increased efiSciency 
which England showed after the adoption of 
this method was most marked, and in striking 
contrast with the inefficiency displayed previ- 
ously in similar work. 

Confessedly our industries are not managed 
in the interest of the community, but in that of 
an autocratic finance. In Germany it was 
proved beyond doubt that an industrial system, 



68 ORGANIZING FOR WORK 

forced by military autocracy to serve the com- 
munity, is vastly stronger than an industrial 
system which serves only a financial autoc- 
racy. 

The method by 'which Germany developed a 
singleness of purpose and tremendous power 
both for peace and for war — namely, autocratic 
military authority — is hateful to us, but we 
must not lose sight of the fact that such power 
was developed and may be developed by some 
other nation again in the future. If we would 
be strong when we are again faced with a con- 
tingency of developing a greater strength, or 
submitting, we must first of all develop a single- 
ness of purpose for the whole community. 

England demonstrated the same thing; for 
had England not rapidly increased her efficiency 
in the production of munitions, it would have 
been indeed a sad day for the British Empire. 

In considering these facts, we should ask 
ourselves if there is not some fundamental fact 
which is accountable for the success of industry 
under such control. The one thing which stands 
out most prominently is the fact that, in the 
attempt to make the industries serve the com- 
munity, an attempt was made to abolish in- 
dustrial privilege, and to give every man an 
opportunity to do what he could and to reward 
him correspondingly. 



ECONOMICS OF DEMOCRACY 69 

As before stated, the industrial system of 
Germany was developed largely as an adjunct 
to its military system, which, to a degree at 
least, forced the abolition of financial and in- 
dustrial privilege, and thereby in a large 
measure eliminated incompetency in high 
places. What results may not be expected, 
therefore, if we abolish privilege absolutely, 
and devote all our efforts to the development 
of an industrialism which shall serve the com- 
munity and thus "develop the unconquerable 
power of real democracy? " 

The close of the war and the abolition of 
political autocracy has brought us face to face 
with the question of a choice between the eco- 
nomic autocracy of the past, or an economic 
democracy. To prove that this is not 
mere idle speculation, note what one of our 
leading financiers said on the subject during 
the war: 

"The President of the New York Life Insurance 
Company," says Mr. Charles Ferguson, "told the 
State Chamber of Commerce, during the great war, 
that under modern conditions the existence of even two 
rival sovereignties on this little planet has become 
absurd. This is true. We must therefore drive for- 
ward, through incredible waste and slaughter, to the 
settlement of the question of which of the rival 
Powers is to build the New Eome, and establish a 



70 ORGANIZING FOR WORK 

military world-state on the Ceesarean model — or else 
we must now set our faces toward a real democracy." 



What is the basis of such a democracy? 

The one thing in all the civilized world, which, 
like the Catholic Church of the middle ages, 
crosses all frontiers and binds together all 
peoples, is business. The Chinaman and the 
American by means of an interpreter find a 
common interest in business. Business is 
therefore the one possible bond which may 
bring universal peace. Economists and finan- 
ciers fully realised this, and believed that an 
autocratic finance could accomplish the re- 
sult. That was their fatal error. The bene- 
ficiaries of privilege invariably battle among 
themselves, even if they are strong enough to 
■hold in subjection those that have no privileges, 
and who have to bear the brunt of the fight. 

This is true whether the beneficiaries be in- 
dividuals or nations. Hence neither internal 
strife nor external war can be eliminated as 
long as some people have privileges over others. 

If privilege be eliminated not only will the 
danger of war be minimized, but the causes of 
domestic strife will be much reduced in number. 
Then, and not until then, will the human race 
be in a position to make a continuous and \m- 
interrupted advance. 



ECONOMICS OF DEMOCRACY 71 

The nation which first realizes this fact and 
eliminates privilege from business, will have 
a distinct lead on all others, and, other condi- 
tions being equal, will rapidly rise to a dominat- 
ing place in the world. Such a nation will do 
by means of the arts of peace, that which some 
Germans seemed to think it was their mission 
to do by means of war. The opportunity is 
knocking at our door. Shall we turn it away? 

The answer is that we must not turn it away. 
In fact, we dare not, if we would escape the 
economic convulsion that is now spreading over 
Europe. Soon after the signing of the armis- 
tice Mr. David E. Francis, formerly ambassa- 
dor to Russia, said that the object of the Soviet 
Government was to prevent the exploitation of 
one man by another. According to Mr. Francis, 
the cause of this convulsion is the attempt of 
the social body to free itself of the exploitation 
of one man by another. Then he added, "Such 
an aim is manifestly absurd. ' ' The convulsion 
is made all the more severe because there are 
people in every community that not only con- 
sider this aim absurd, but use all their influence 
to prevent the accomplishment of it. 

If, at the end of a victorious war for de- 
mocracy, a prominent representative of the 
victors is willing to proclaim publicly such a 
sentiment, it is perfectly evident that we have 



>72 ORGANIZING FOR WORK 

not yet solved all of our problems. Whether we 
approve of the Soviet method of government or 
not, even Mr. Francis must admit that their 
aim, as expressed by him, is a worthy one. It 
would be surprising if in the time which has 
elapsed since the Russian revolution an entirely 
satisfactory and permanent method should have 
been developed to prevent the exploitation of 
one man by another, but the fact that they have 
not yet established such a government is hardly 
a basis for the statement that the establishment 
of such a government is absurd. 

This statement by Mr. Francis brings clearly 
to the front the question — Is our business sys- 
tem of the future going to continue to be one 
of exploitation of one man by another, or is it 
possible to have a business system from which 
such privilege has been eliminated? 

In this connection it may be interesting to 
note that, for the past fifteen years, I and a 
small band of co-workers have been attempting 
to develop a system of industrial management 
which should not be dependent on the exploita- 
tion of one man by another, but should aim to 
give each as nearly as possible his just dues. 
Strange as it may seem to those of the old 
way of thinking, the more nearly successful we 
have been in this attempt, the more prosperous 
have the concerns adopting our methods be- 



ECONOMICS OF DEMOCRACY 73 

come. In view of this fact we beg to submit 
that the proposition does not seem to us to be 
absurd, even though we may not admit that 
any of the solutions heretofore offered have 
really accomplished the result. In a subsequent 
chapter, however, we shall present the progress 
which we have recently made in this direction. 



VIII . 
DEMOCRACY IN PRODUCTION 

(Progress Charts) 

It is unquestionable that the strategy of 
General Foch, who so promptly took advantage 
of the error of the Germans in not flattening out 
the French salient between Montdidier and 
Chateau-Thierry, enabled him to establish his 
offensive which, with the new spirit put into 
his whole force by the splendid fresh troops of 
the American army, would undoubtedly have 
wrested victory from the Germans in the long 
run, even if they had been able to stave off the 
revolution at home and keep their economic sys- 
tem in good shape. It is a fact, however, that 
a growing discontent due to the increasing hard- 
ships which their economic system was unable 
to relieve, and which threatened a revolution, 
was unquestionably an important factor in 
lowering the morale of the army and worked 
strongly in our favor. Of course, a knowledge 
of the real conditions at home was kept as much 
as possible from the soldiers at the front, but 

74 



DEMOCRACY IN PRODUCTION 75 

from what we have learned since the armistice 
it must have been perfectly clear to those in 
control some time before the armistice, that 
their economic strength was exhausted, and 
hence, the end had come. 

It has even been suggested that the attempt 
of the Germans to extend the salient at Chateau- 
Thierry before they flattened out the salient 
between Montdidier and that point, was taking 
a "gambler's chance," for they realized then 
that they were near the end of their economic 
resources and that they must have a quick vic- 
tory or none. 

Whether this theory is true or not, the fact 
remains that the threatened collapse of the 
economic system was a controlling factor during 
the last few months of the war. In other words, 
war cannot be waged unless the economic sys- 
tem is capable of supporting the population and 
also furnishing the fighting equipment. To be 
as strong as possible in war, therefore, we must 
develop an economic system which will enable 
us to exert all our strength for the common 
good, which will therefore be free from auto- 
cratic practices of either rich or poor, for such 
practices take away from the community for the 
benefit of a class. 

It is pretty generally agreed that this philoso- 
phy is correct in time of war, but both the rich 



76 ORGANIZING FOR WORK 

and the poor seem to think that we do not need 
to be strong in time of peace, and that we may 
with impunity go back to the pull and haul for 
profits regardless of the results to the com- 
munity. Such a condition does not produce 
strength, but weakness; not harmony, but dis- 
cord. 

In the struggle that arises under the above 
conditions, between an autocratic ownership and 
an autocratic labor party, the economic laws 
which produce strength are largely disregarded 
and the whole industrial and business system 
becomes infected with such a feebleness that it 
is incapable of supporting our complicated sys- 
tem of modem civilization. This is exactly 
what is happening in eastern Europe, where 
civilization is tottering due to the fact that the 
industrial and business system by which it was 
supported is no longer functioning properly. 
The production portion seems to have abso- 
lutely broken down, hence there is a shortage 
everywhere of the necessities of life. This 
failure is undoubtedly due to a combination of 
causes; but whatever the cause, the result is 
the same, for the violation of economic laws, 
whether through interest, ignorance, or indo- 
lence, will ultimately, to use the language of a 
distinguished economist, "blow the roof off our 
civilization just as surely as the violation of 



DEMOCRACY IN PRODUCTION 77 

the laws of chemistry will produce an explosion 
in the laboratory." 

We must avoid the possibility of this explo- 
sion at all hazards. If we would accomplish 
this result we must begin at once not only to 
make clear what the correct economic laws are, 
but to take such steps in conformity with them 
as will get the support of the community in 
general, and lessen the danger of following 
Europe into the chaos toward which she seems 
heading. 

Those who believed the war could last only a 
few months based their opinion on the destruc- 
tion of wealth it would cause. They had abso- 
lutely no conception of the tremendous speed 
with which this loss might be made good by the 
productive force of modern industry. They did 
not understand that the controlling factor in 
the war would ultimately become productive 
capacity. 

When we entered the war, it was of course 
necessary to raise money, and through the 
persistent use of the slogan Money will win the 
war, our loans were promptly oversubscribed. 
Although we were able to raise all the money we 
needed, we had difficulty in transforming that 
money quickly into fighting power, for we made 
the fundamental error of considering that those 
who knew how to raise money, also knew how 



78 ORGANIZING FOR WORK 

to transform it into food and clothing, weapons, 
and ships. The sudden ending of the war pre- 
vented us from realizing how great this error 
was. Even a superficial review of what took 
place during 1918, however, reveals the fact 
that our efforts at production were sadly in- 
effective. So true is this that some of those in 
authority not only discouraged all efforts to 
show comparison between their promises and 
their performances in such a manner that the 
public could understand, but they actually for- 
bade such comparisons to be made. 

There was, in Washington, at the beginning 
of the war, however, one man who understood 
the necessity for just this kind of record, which 
should be kept from day to day and should show 
our progress in the work we had to do. This 
man was Brigadier General William Crozier, 
Chief of Ordnance. Apparently alone among 
those in authority at that time, he recognized 
the important principle that authority and re- 
sponsibility for performance must be centered 
in the same individual, and organised his de- 
partment on that basis. Before the breaking 
out of the war a simple chart system, which 
showed the comparison between promises and 
performances, had been established in the 
Frankford Arsenal. This system General 
Crozier began to extend throughout the Ord- 



DEMOCRACY IN PRODUCTION 79 

nance Department as soon as we entered the 
war, in order that he might at all times see 
how each of his subordinates was performing 
the work assigned to him. As the method was 
new, progress was necessarily slow, but before 
General Crozier was removed from his position 
as Chief of Ordnance, in December, 1917, a 
majority of the activities of the Ordnance De- 
partment were shown in chart form so clearly 
that progress, or lack of progress, could be 
seen at once. No other government department 
had at that time so clear a picture of its prob- 
lem and the progress being made in handling it. 
The following incident will serve to show the 
results that had been produced by this pol- 
icy. Late in November, 1917, Dean Herman 
Schneider of the University of Cincinnati, was 
called to the Ordnance Department to assist on 
the labor problem. Before deciding just how 
he would attack his problem, he naturally in- 
vestigated the activities of the department as 
a whole, with the result that early in December, 
1917, he wrote General C. B. Wheeler, under 
whom he was working, a letter from which the 
following is an extract : 

"The number of men needed for the Ordnance 
Program should be ascertainable in the production 
sections of the several divisions of the Ordnance De- 



80 ORGANIZING FOR WORK 

partment. Investigation so far (in three production 
sections) discloses that, except in isolated cases, a 
shortage of labor is not evident. 

"Each production section has production and 
progress chart systems. These seem to vary in minor 
details only. Even without rigid standardization, 
the charts give a picture of the progress of the whole 
Ordnance Program including lags and the causes 
therefor. Combined in one office and kept to date 
they would show the requirements as to workers, as 
well as to materials, transportation, accessory ma- 
chinery, and all of the other factors which make or 
break the program. 

"With a plan of this sort the Ordnance Depart- 
ment would be in a position to state at any time its 
immediate and probable future needs in men, ma- 
terials, transportation, and equipment. 

"The other Departments of the War Department 
(and of other departments engaged in obtaining wiar 
material) can, through their Production Sections, do 
what the Ordnance Department can do, namely, as- 
semble in central offices their production and progress 
charts through which they would know their immedi- 
ate and probable future needs. 

"Finally, these charts assembled in one clearing 
office would give the data necessary in order to make 
the whole program of war production move with fair 
uniformity, without disastrous compe ition and with 
justice to the workers." 

This letter not only sets forth clearly what 
General Crozier had accomplished, but it shows 



DEMOCRACY IN PRODUCTION 81 

still more clearly Dean Schneider's conception 
of the problem which at that time lay immedi- 
ately before us. General Crozier's successors 
allowed the methods which had been developed 
to lapse, and Dean Schneider's vision of the 
industrial problem and ability to handle it were 
relegated to second place. 

The methods referred to by Dean Schneider 
were afterward adopted in an elementary way 
by the Shipping Board and by the Emergency 
Fleet Corporation. Although they were never 
used to any great extent by those in highest 
authority, who apparently were much better 
satisfied simply to report what they had done, 
rather than to compare it too closely with what 
they might have done, they were used to great 
advantage by many who were responsible for 
results in detail. 

Fig. 6 is a sample of the charts referred to 
above. This is an actual Ordnance Department 
chart, entered up to the end of December, 1917, 
the names of the items being replaced by let- 
ters. It was used to illustrate the methods 
employed and to instruct people in the 
work. 

The distance between the current date and 
the end of the heavy or cumulative line indi- 
cates whether the deliveries of any article are 
ahead or behind the schedule and how much. 



82 ORGANIZING FOR WORK 

It is thus seen that the short lines indicate in- 
stantly the articles which need attention. 

As said before, when General Crozier was re- 
moved from his office about the 1st of December, 
1917, he had a majority of the items for which 
he was responsible charted in this manner, and 
was rapidly getting the same kind of knowledge 
about the other items. Charts of this character 
were on his desk at all times, and he made 
constant use of them. 

This chart is shown only as a sample and 
represents a principle. Each item on such a 
chart as the above may have been purchased 
from a dozen different suppliers, in which case 
the man responsible for procuring such articles 
had the schedule and progress of each contract 
charted in a manner similar to that on Chart 6. 
Chart 7 is such a chart. The lines on Chart 6 
represented a summary of all the lines on the 
corresponding detail charts. 

Similar charts were used during the war to 
show the schedules and progress in building 
ships, shipyards, and flying boats — and are now 
being used for the same purpose in connection 
with the manufacture of many kinds of ma- 
chinery. The great advantage of this type of 
chart, known as the straight line chart, is that 
it enables us to make a large number of com- 
parisons at once. 



— — 


l!lferedlpAecgmber3L'!L9L7_ 








TOTAL 1917 


1 1 1 1 i 1 1 




ARTICLES 




ORDERED J'"'"'"'i< February March April May June July August September October November December 




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— ^ — 1 


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tr IBM lit -J29M- '^nm - iW^Zm - bIm^Im- 09M 23M " 


I32M 




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IS 16 




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156.670 !5i y 7^ 










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ORDER 


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CONTRACTOR 


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Fig: 6.— Pbogbess Chabt (top) and Fig. 7. — Oedeb Chabt (bottom) 

At the left of the upper chart is a list of articles to be procured. The amounts for which orders have been placed 
are shown in the column headed " Amount ordered." The dates between which deliveries are to be made are shown by angles. 
The amount to be delivered each month is shown by a figure at the jleft side of the space assigned to that month. The figure at 
the right of each time space shows the total amount to be delivered up to that date. 

If the amount due in any month is all received, a light line is 1 drawn clear across the space representing that month. If 
only half the amount due is received, this line goes only half way ?icross. In general, the length of the light line or the number 
of lines indicates the amount delivered during that month. 

The heavy line shows cumulatively the amount delivered up to the date of the last entry. It will be noted that, if this 
line is drawn to the scale of the periods through which it passes, the distance from the end of the line to the current date 
will represent the amount of time deliveries are behind or ahead df the schedule. It is thus seen that the short cumulative lines 
are the ones which require attention, as they represent items that are farthest behind schedule. Z represents no deliveries. 

The top line on the lower chart is a summary of the individual orders and is represented on the upper chart by line A. 



DEMOCRACY IN PRODUCTION 83 

From the illustrations given the following 
principles upon which this chart system is 
founded are easily comprehended: 

First : The fact that all activities can be 
measured by the amount of time needed to per- 
form them. 

Second : The space representing the time unit 
on the chart can be made to represent the 
amount of activity which should have taken 
place in that time. 

Bearing in mind these two principles, the 
whole system is readily intelligible and affords 
a means of charting all kinds of activities, the 
common measure being time. 



IX 

DEMOCRACY IN THE SHOP 

(Man Records) 

In the chapter on "An Extension of the Credit 
System," we referred only to financial credit. 
The term credit, of course, has a much broader 
meaning. For instance, when a man has proved 
his knowledge on a certain subject, we "give 
him credit" for that knowledge; when he has 
proved his ability to do things, we "give him 
credit" for that ability. In other words, we 
have confidence that he will make good. The 
credit which we give a man, or the confidence 
which we place in him, is usually based on his 
record. We placed confidence in Greneral 
Pershing because of his record. We gave him 
credit for being able to handle the biggest job 
we had, and our faith was not misplaced. If 
we had an exact record of the doings of every 
man, we should have a very comprehensive 
guide for the placing of confidence and the ex- 
tending of credit — even financial credit. 

Inasmuch, however, as our record of indi- 
viduals is exceedingly meager and our inf orma- 

84 



DEMOCRACY IN THE SHOP 85 

tion concerning them is usually derived from 
interested parties, we have very little sub- 
stantial basis for placing confidence in or ex- 
tending credit to people in general. It is there- 
fore hardly to be expected that a business sys- 
tem will risk investment without a more sub- 
stantial guarantee for the financial credit it 
extends. It would seem, then, that if we really 
wish to establish such a credit system as is 
described in Chapter VI, we must keep such a 
record of the activities of individuals as will 
furnish the information needed to give a proper 
guarantee. 

All records, however, are comparative, and 
the record of a man's performance is compara- 
tively valueless unless we are able to compare 
what he has done with what he should have 
done. The possibilities in the modern industrial 
system are so great that there is scarcely any 
conception of them by people in general. In 
fact, many accomplishments which have been 
heralded as quite extraordinary, are shown on 
careful examination to have been quite the re- 
verse, when a comparison is made with the pos- 
sibilities. 

In the past if a man has accomplished a de- 
sirable result, we have been pretty apt to let it 
go on its face value, and have seldom inquired 
into how it was done. We have no criticism of 



86 ORGANIZING FOR WORK 

this as a habit of the past, but the war has 
brought an entirely different viewpoint into the 
world, and shown others besides Americans how 
inefiSciently the world is conducting its civiliza- 
tion. Other peoples have realized that the real 
asset of a nation is its human power, and un- 
doubtedly will soon begin to adopt means of 
measuring this power to the end that they niiay 
use it more effectively. 

Some of us have made a start in this work 
by keeping individual records of operatives, 
showing as nearly as possible what they have 
done in comparison with what they might have 
done, with the reasons for their failing to ac- 
complish the full amount. By systematically 
attempting to remove the obstacles which stood 
in the way of complete accomplishment, we have 
secured a remarkable degree of co-operation, 
and developed in workmen possibilities which 
had been unsuspected. Further, we have de- 
veloped the fact that nearly all workers wel- 
come any assistance which may be given them 
by the foreman in removing the obstacles which 
confront them, and teaching them to become 
better workers. Chart No. 8 is an actual chart 
of this type from a factory and covers a period 
of two weeks. Bach working day was ten hours, 
except Saturday, which was five. The charts 
are ruled accordingly. If a worker did all that 



DEMOCRACY IN THE SHOP 87 

was expected of him in a day the thin line goes 
clear across the space representing that day, 
and if he did more or less, the number of such 
thin lines or the length of the line indicate the 
amount. The number of days' work he did in 
a week is represented by the heavy line. Wher- 
ever a dotted line is shown, it indicates that 
during that time the man worked on a job for 
which we had no estimated time. The letters 
are symbols indicating the cause of failure to 
perform the full amount of work. A key to 
these symbols follows Chart No. 8. 

Inasmuch as, according to our idea of man- 
agement, it is a foreman's function to remove 
the obstacles confronting the workmen, and to 
teach them how to do their work, an average 
of the performance of the workmen is a very 
fair measure of the efficiency of the foreman. 
This is shown by the line at the top of the 
chart. It may readily be seen that such a chart 
system gives a very fair means of fixing the 
compensation of workers and foremen, and a 
series of such charts kept up week after week 
will give us a measure of the amount of confi- 
dence which we may place in the individual 
foreman and workman, for if all obstacles are 
removed by the foreman the workman's line is 
a measure of his effectiveness. 

Just as the line representing the average oj^ 



88 OEGANIZING FOE WORK 

all the workers is a measure of the foreman, so 
a line representing the average of all the fore- 
men is in some degree at least a measure of the 
superintendent. 

The improvement which has been made by 
workers under our teaching and record-keeping 
systems involves more than is at first apparent. 
For instance, it has clearly been proven that 
poor workmen are much more apt to migrate 
than good workmen. The natural conclusion 
from this is that if we wish to make workmen 
permanent, our first step must be to make better 
workmen of them. Our experience proves this 
conclusion to be correct. 

Many of our large industrial concerns have 
estimated that the cost of breaking in a new 
employee is very high — running from about 
$35.00 up. We have already satisfied ourselves 
that if only a fraction of this amount is ex- 
pended in training the inferior workman, we 
can reduce migration very materially. In other 
words, money spent in proper teaching and 
training of workmen is a highly profitable in- 
vestment for any industrial concern, provided 
there is some means of measuring and recording 
the result. So beneficial have our training 
methods proved that we are inclined to believe 
that the practice of stealing good workmen from 



-Man__ RECORD CHART FOR DEPT. date Week EndincLMarch8tt 15*1919; 






1 












NAME 


jia. 




Mon 


d 


Tue? 


I. 


Wed. 5 


Thurs.6 


Frid.7 


&at8 Won. 10 " ues. 1 Wed 12 Thur i;; Frid.l4 Satia 


PALEN 




■ 






1. 


■ ■ 


























rf 


Z\% 


72% "' !B?r \ 


6nffen 


501 


- 




T . 


T_I 




_ T 


--I 


T 


— ^ HB "'" """ -'" -T - - 


Pal en 
Millspauqh 


503 

t;n7 


B 


JR 


.-: 


f 
- 




_ e 


s 


S 


-<i -fs ^ . I s r 


Owens 
Roqee 


514 

517 


. = 




... 




"~ 




A 

R 


A 




■" 

Williams 


519 


. 




T . 




.1 




1 




, --:-- T.. _. TT __.. 


Marten 


627 


_ 




m m i 


. 




J 


-J 


I 


:r-:"-:""::-±:":::::::::: 


St^art 


535 


_ 




4 


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s 


G 




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' 


































































REYNOLDS 








■■■ 






■ ■■ 




















■KX 




24 iA "^ 


i\% 


SfX \ii\ yy. 


Marchand 


508 


^ 










- 


- 


T 


I A A - T T 


Bradford 


513 




_T 


- 


._ 1 




T 


-- 


- -L 


''f'°°"~ Ji .1 A- IT-- 


Rusk 


525 


- 


^i 


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. .-. -. 


.-. 




n~--- 


.....J: 


^^l____.^i^dii.i.Si; i;ij| 


oernardt 
Forbes 


Sib 

529 


- 




■■- 






-T 


A 


A 


'- . S _. ., _ ., ""j 


Lewis 


530 






= 








— T 





-T T T 


6ro+h 


531 




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g T 




T 


X X A ;s .ET 


Plepljiq 


532 




A 




A 




A 


A 


A 


*" i_-_-iJ__.l^ = L = — ' -■■ 


Swart^ 


533 




■A 




A 




A 


A \ 


A 


A - i_ --^ — T FT 


Shorter 


534- 


- 





T . 


._ T 






_ .. - T 1 




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537 


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— L 



















The port 
pected to do. 



Fig. 8. — Key fob Man Record Chart 

I The daily space represents the amount of work a man should have done In a day, and also the time taken to 
I do the work. 

Estimated time for work done. 
Time on job for which we have no estimates. 

Solid line = cumulative estimated time for work done. Broken line = total time used on work not estimated 
ion of the daily space through which no line is drawn shows how much the man has fallen behind what he was ex- 
The reasons for his falling behind arc indicated by the following symbols: 

A Absent I Lack of instruction V Holiday 

U Defective work M Lack of or defective material X Reason not clear 

G Green operator T Tool troubles, or lack of tools 



DEMOCRACY IN THE SHOP 89 

one's competitor will ultimately prove to be as 
unprofitable as- stealing his property. 

Before the rise of modern industry the world 
was controlled largely by predatory nations who 
held their own by exploiting and taking by force 
of arms from their less powerful neighbors. 
With the rise of modern industrialism, produc- 
tive capacity has been proven so much stronger 
than military power that we believe the last 
grand scale attempt to practice the latter 
method of attaining wealth or power has been 
made. In this great war it was clearly proven 
that not what we have but what we can do is 
the more important. It clearly follows, then, 
that the workers we have are not so important 
as our ability to train others ; again illustrating 
the fact that our productive capacity is more 
important than our possessions. 

That the methods which I have here so in.- 
adequately described are of broad applicability, 
has been proven by the fact that they have re- 
ceived enthusiastic support of the workmen 
wherever they have been tried. As previously 
said, it is undoubtedly true that the "efficiency" 
methods which have been so much in vogue for 
the past twenty years in this country, have 
failed to produce what was expected of them. 
The reason seems to be that we have to a large 
extent ignored the human factor and failed to 



90 ORGANIZING FOR WORK 

take advantage of the ability and desire of the 
ordinary man to learn and to improve his posi- 
tion. Moreover, these "efficiency" methods 
have been applied in a manner that was highly 
autocratic. This alone would be sufficient to 
condemn them, even if they had been highly 
effective, which they have not. 

In this connection it has been clearly proven 
that better results can be accomplished if the 
man who instructs the workman also inspects 
the work and not only shows the workman 
where he is wrong, but how to correct his 
errors, than if the inspection is left to a com- 
paratively ignorant man, who is governed by 
rules. The attempt to combine instruction and 
inspection in one man has met with the highest 
approval among the workmen, with the result 
of better work and less loss. This method is 
contrary to the usual practice, inasmuch as 
instruction and inspection have been considered 
two functions, the former requiring an expert 
and the latter a much less capable, and hence 
cheaper, man. We are satisfied that this 
analysis is defective; the inspector who can 
show the workman how to avoid his errors is 
usually worth far more than the extra com- 
pensation required to secure his services. It 
may be impossible to measure the exact 
material value of these methods individually, 



DEMOCRACY IN THE SHOP 91 

but the total e£fect is reflected in an improved 
and increased product at a lower cost. 

Inasmuch as there is no necessity for any 
coercion in applying these methods when we 
have an instructor who is capable of being a 
leader, we rapidly attain a high degree of 
democracy in the shop. On the other hand, if 
the instructor chosen fails to measure up to the 
standard of leadership, it is never long before 
his shortcomings are exposed, for through the 
medium of our charts available facts are easily 
comprehended by all. By these methods we 
automatically select as leader the man who 
knows what to do and how to do it, and when 
he has been found and installed, progress is 
rapid and sure. 



DEMOCRACY IN MANAGEMENT 

(Machine Records) 

Having demonstrated by experience that it is 
possible to run a shop democratically and that 
the idea of giving every man a fair show and 
rewarding him accordingly is not really absurd, 
we naturally ask how far upward into the 
management we can carry this principle. The 
world still believes that authority must be con- 
ferred, and has a very faint conception of what 
we mean by intrinsic authority, or the authority 
that comes to a man who knows what to do and 
how to do it, and who is not so much concerned 
with being followed as on getting ahead. 

The problem of the manager is much wider 
than that of the superintendent or the foreman, 
for he must see that there is work to be done, 
materials to work with and men to do the work, 
besides numerous other things which are not 
within the sphere of the foreman. 

The object of a shop being to produce goods, 
the first problem which comes to him is to find 



DEMOCRACY IN MANAGEMENT 93 

out to what extent the shop is performing the 
function for which it was built. In other words, 
are the various producing machines operating 
all the time and if not, why not? An oppor- 
tunity for our chart comes in again, and the 
reason why a machine did not work at all is 
indicated by symbols. Chart No. 9 is one of 
this type. The thin lines represent the number 
of hours each day a machine was operated; 
the heavy line represents the total number of 
hours it operated during the week. The sym- 
bols indicate the causes of idleness ; some were 
due to lack of work ; some to lack of material ; 
some to lack of men; some on account of re- 
pairs, etc. If we have not work enough to keep 
the shop busy, we must look for the cause by 
asking: Is there work to be had? Is our price 
low enough? Is our quality good enough? The 
answer to the first two must be determined by 
the manager in connection with the sales de- 
partment. The third by the manager in connec- 
tion with the shop superintendent. If our idle- 
ness is due to lack of material, the question 
must be taken up with the buyer and store- 
keeper. If it is due to lack of help, the labor 
policy and the wage system must be studied. 
If the idleness is due to repairs on machinery, 
the question is one for consideration by the 
superintendent and the maintenance depart- 



94 ORGANIZING FOE WORK 

ment. In every case the responsibility for a 
condition is traced directly to its source. More- 
over, as it is entirely possible to determine the 
expense incurred by idleness, such expense may 
be allocated directly to the responsible parties. 
Inasmuch as a real management system is 
simply a mechanism for keeping all concerned 
fully advised as to the needs of a shop, and for 
showing continuously how these needs have 
been supplied, the comparison between what 
each man from the top to the bottom did and 
what he should have done is easily made. 
Under a system of management based on our 
charts, it soon becomes evident to all, who is 
performing his function properly and who is 
not. A man who is not making a success, knows 
about it as soon as anybody else, and has the 
opportunity of doing better if he can. If he is 
not making good, it is very seldom that he has 
any desire to hold on to the job and advertise 
his incompetency to his fellows. Moreover, 
it takes but a short experience with these 
methods to convince a man that his record will 
discredit him very much if he uses opinions 
instead of facts in determining his methods 
and policies. We are thus able to apply the 
same standards to those in authority that we 
apply to the workmen. In other words we ask 
of all — how well did he perform his task? A 



MACHINE RECORD CHART_ DEPT. DATE'^elsEndmg March llMgrdiAtlSI?^ 








'£B. 1913 


















j 








MACH 
NO. 


Mon.24 


lues 25 


Wed. 26 


Thura27 


frid.28 Serf 


-.1 Mon. 3 


.Tues-'f; 


-wed. 5 - 


Thur. 6 


, Frid. 7 


Sa+.8 




TOTAL OPERMINST 


ME 












































































OF PRODUCTIVE MWH 


NES i 


— 






_ 




_ 


_ 










_ 











_ 


_ 


— 





-. 




_ 


_ 







_ - 






i--^ 


_ — 


— 





























































































C0LDTR1MMIN6 
















































































PRESSES 
















































































Small 


Total . 








_ 




_ 


_ 




__ 


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Fig. 9. — Key for MACHiNk Record Chabt 



Time machine was worlcing. 

"~~~-i^— ^— ^— Cumulative worl<ing time of individual midlines. 
■^■^■'■■■■■■* Cumulative working time of a group of michines 
The portion of the daily space through which no lines are 
The reasons for idleness are indicated by the following symbolE 
H Lack of help 

M Lack of or defective material 
P Lack of power 



drawn represents the time the machine was idle. 

R Repairs 

T Lack of tools, or tool troubles 

W Lack of work 



DEMOCRACY IN MANAGEMENT 95 

short line on a chart points unfailingly to him 
who needs most help. 

The Machine Record charts just referred to 
have to do with what proportion of the plant 
was operated. The Man Record charts indicate 
the effectiveness with which the machines were 
operated during the time they were operated. 
For instance, if a machine were operated only 
one-half the time, and with only one-half of its 
effectiveness during that time, we should get 
out of the machine only one-quarter of its pos- 
sible use. A combination, therefore, of these 
two sets of charts, which gives a measure of the 
manager, is a basis of our faith in him, and a 
measure of the financial credit that may be ex- 
tended to him as a producer. A little con- 
sideration will show that such a record is a far 
safer basis for financial credit in, many cases 
than physical property, and affords a means 
of financing ability or productive capacity as 
well as ownership. It is not to be concluded 
that this subject is being presented in its final 
and complete form, but it is claimed that enough 
has been established to enable us to make an 
intelligent start in the operation of the new 
credit system, which the Federal Government 
was obliged to adopt without any guide. 

Further, it is safe to say that if such records 
as the ones just described had been available 



96 ORGANIZING FOR WORK 

for the prominent business men of the country 
at the breaking out of the war, we should have 
been saved much time, and the expenditure 
of many millions of dollars. 

The fact that such a system is applicable to 
the arts of peace as well as those of war ; that 
it will pay for itself over and over again while 
it is being installed; and that it will enable 
us to value men according to service they can 
render, would seem to be sufficient reason why 
we should lose no more time than is necessary 
in taking steps to extend it throughout the 
nation. The fact that it is not an efficiency 
system as the term is generally understood, 
nor a system of scientific management as that 
term is understood, but simply one which en- 
ables us to use all the knowledge available and 
in a manner which is intelligible to the most 
ordinary workman as well as to the best edu- 
cated executive, is responsible for the enthusi- 
asm with which it has been received by the 
workmen as well as the executive. It is de- 
signed to enable all of us to use all the knowl- 
edge we have to the best advantage, and does 
not in the slightest interfere with, but rather 
supplements and supports, the work of those 
whose problem is to acquire additional knowl- 
edge. 

In the preceding chapters we have given our 



DEMOCRACY IN MANAGEMENT 97 

view of the economic situation; of the forces 
that were affecting it, and whither it was tend- 
ing. We have also shown our mechanism for 
making effective use of all the knowledge avail- 
able. "We also see that with increase in the 
amount and availability of knowledge the more 
certain our course of action is outlined, and the 
less we need to use opinion or judgment. 

Moreover, our record charts invariably indi- 
cate the capable men, and not only give us an 
indication of how to choose our leaders, but a 
continual measure of the effectiveness of their 
leadership after they are chosen. We thus 
eliminate, to a large extent at least, opinion or 
judgment in the selection of leaders, and in so 
far do away with autocratic methods from 
whatever source. 



XI 
"THE RELIGION OF DEMOCRACY" 

Foe over a thousand years the history of the 
world has been made by two great forces — the 
church and the state — the church basing its 
power on idealism and moral forces, the state 
depending almost entirely upon military power. 
At times these two forces have seemed for a 
while to co-operate, and then to become antago- 
nistic. Today they are absolutely distinct, 
working in different fields, with but little ground 
in common, and a rival claims the middle of the 
stage, for during the last century there has 
come into the world another force, which has 
concerned itself but little with our religious 
activities, and interested itself in our political 
activities only in so far as it could make the 
political forces serve its ends. I speak of the 
modern business system, based on the tre- 
mendously increased productive capacity of the 
race due to the advance of the arts and sciences. 
The rapid expansion of this new power has 
thrown all our economic mechanism out of gear, 
and because it failed to maintain a social pur- 
pose, which is common to both of the other 

98 



"THte EELIGION OF DEMOCRACY" 99 

forces, produces cross-currents and antago- 
nisms in the community which, are extremely 
detrimental to society as a whole. 

One hundred years ago, each family — cer- 
tainly each community — ^produced nearly every- 
thing needed for the simple life then led. 

The village blacksmith and the local mill 
served the community, which existed substan- 
tially as a self-contained unit. 

With the growth of the transportation sys- 
tem and grand scale production many of the 
functions of the local artizans were taken over 
by the factory, just as the flour mills of 
Minneapolis supplanted the local mills, which 
went out of existence. 

In the same manner other large centralized 
industries by superior service drove out of ex- 
istence small local industries. By reason of 
improved machinery and a better technology 
the centralized industries were able to render 
this superior service, at the same time securing 
large profits for themselves. Unfortunately for 
the country at large, those who later came into 
control of these industries did not see that the 
logical basis of their profits was service. When, 
therefore, the community as a whole had 
come to depend upon them exclusively, they 
realized their opportunity for larger profits 
still, and so changed their methods as to give 



100 ORGANIZING FOR WORK 

profits first place, oftentimes ignoring almost 
entirely the subject of service. It is this change 
of object in the business and industrial system, 
which took place about the close of the nine- 
teenth century, that is the source of much of 
the woe that has recently come upon the world. 
Unless the industrial and business system can 
rapidly recover a sense of service and grant 
it the first place, it is hard to see what the next 
few years may bring forth. 

The great war through which we have just 
passed has done away with political autocracy, 
apparently forever, but it has done nothing 
whatever in this country to modify the auto- 
cratic methods of the business system, which 
is a law unto itself and which now accepts no 
definite social responsibility. This force is 
controlled by and operated in the interest of 
ownership, with, in many cases, but little con- 
sideration for the interests of those upon whose 
labor it depends, or for that of the community. 
We should not be surprised, therefore, that the 
workman who is most directly affected by this 
policy is demanding a larger part in the control 
of industry, especially as the war has taught 
him, in common with most of us, that the method 
of operating an industry is more important to 
the community than the particular ownership 
of that industry. The result of this knowledge 



"THE RELIGION OF DEMOCRACY" 101 

is that the workers throughout the world are 
striving everywhere to seize the reins of power. 
Unfortunately for the world at large, these 
workers as a rule have no clearer conception of 
the social responsibility than those already in 
control. Moreover, having had no experience 
in operating grand scale industry and business, 
it is more than likely that their attempt to do 
so will result disastrously to the community. 
The industrial system as a whole is thus threat- 
ened with a change of control which we can 
scarcely contemplate with equanimity. We 
naturally ask if there is any possible relief from 
the confusion with which we are threatened. 
We think there is, but not by any of the methods 
generally advocated by "intellectuals" who are 
not closely in touch with the moving forces. 

One class believes that the answer comes in 
government ownership and government control 
of industries. The experience of the world so 
far does not, however, give much encourage- 
ment along these lines, for in some quarters 
where public utilities have to a large extent 
been run by the government, it is frankly ad- 
mitted that the government is being run by the 
business system, which leaves us just where we 
were, unless we can get a social purpose into 
that system, in which case the need for govern- 
ment ownership would disappear. Is such a 



102 ORGANIZING FOR WORK 

thing possible? Unless it can be shown that a 
business system which has a social purpose is 
distinctly more beneficial to those who control 
than one which has not a social purpose, I 
frankly confess that there does not seem to be 
any permanent answer in sight. On the other 
hand, if it can be shown conclusively that a 
business system operated by democratic 
methods (and the test of such a system is that 
it acts without coercion and offers each man 
the full reward of his labor) is more beneficial 
to those who lead than the present autocratic 
system, we have a basis on which to build a 
modern economic state, and one which we can 
establish without a revolution, or even a serious 
jar to our present industrial and business sys- 
tem. In fact, so far as I have been able to 
put into operation the methods I am advocating, 
we have very materially reduced the friction 
and inequalities of the present methods much 
to the benefit of both employer and employee. 

In 1908 I wrote a paper for the American 
Society of Mechanical Engineers, on "training 
workmen" in which I used the following ex- 
pression: "The general policy of the past has 
been to drive; but the era of force must give 
way to that of knowledge, and the policy of the 
future will be to teach and to lead, to the ad- 
vantage of all concerned." 



"THE EBLIGION OP DEMOCRACY" 103 

This sentiment met with much hearty sup- 
port, but inasmuch as no mechanism had at 
that time come into general use for operating 
industry in that manner, the sentiment re- 
mained for most people simply a fine sentiment. 
At that time the organization of which I am the 
head had already made some advance in the 
technology of such a system of management, 
and since that time we have continued to de- 
velop our methods along the same lines, as 
shown in the previous chapters of the book. 

Throughout this little book we have at- 
tempted to make clear that those who know 
what to do and how to do it can most profitably 
be employed in teaching and training others. 
In other words, that they can earn their great- 
est reward by rendering service to their fellows 
as well as to their employers. It has only been 
recently that we have been able to get owners 
and managers interested in this policy, for all 
the cost systems of the past have recorded such 
teachers as non-producers and hence an ex- 
pense that should not be allowed. Now, how- 
ever, with a proper cost-keeping system sup- 
plemented by a man-record chart system, we see 
that they are really our most effective pro- 
ducers. 

We have attempted in this book to show an 
-example of the mechanism by which we have 



104 ORGANIZING FOR WORK 

put into operation our methods, and some of 
the results that have been obtained by them, the 
most important of which is that under such a 
system no "blind guides" can permanently 
hold positions of authority, and that leadership 
automatically gravitates to those who know 
what to do and how to do it. Moreover, we have 
yet to find a single place where these methods 
are not applicable, and where they have not 
produced better results than the old autocratic 
system. Moreover, they produce harmony be- 
tween employer and employee and are welcomed 
by both. In other words, we have proved m 
many places that the doctrine of service which 
has been preached in the churches as religion 
is not only good economics and eminently prac- 
tical, but because of the increased production 
of goods obtained by it, promises to lead us 
safely through the maze of confusion into which 
we seem to be headed, and to give us that in- 
dustrial democracy which alone can afford a 
basis for industrial peace. 

This doctrine has been preached in the 
churches for nearly two thousand years, and 
for a while it seemed as if the Catholic Church 
of the middle ages would make it the controlling 
factor in the world ; but the breaking up of the 
Church of the middle ages into sects, and the 
advance of that intellectualism which placed 



"THE RELIGION OP DEMOCRACY" 105 

more importance upon words and dogma than 
upon deeds, gave a setback to the idea which 
has lasted for centuries. Now, when a great 
catastrophe has made us aware of the futility 
of such methods, we are beginning to realize 
that the present business system needs only 
the simple methods of the Salvation Army to 
restore it to health. It is absolutely sound at 
the bottom. 

The attempt to run the world by words and 
phrases for the benefit of those who had the 
power to assemble those words and phrases in- 
volved us in a great war, and the continued 
application of these methods seems to be lead- 
ing us into deeper and deeper economic con- 
fusion. We are therefore compelled to recog- 
nize that the methods of the past are no longer 
possible, and that the methods of the future 
must be simpler and more direct. 

It should be perfectly evident that with the 
increasing complexity of the modern business 
system (on which modern civilization depends) 
successful operation can be attained only by 
following the lead of those who understand 
practically the controlling forces, and are will- 
ing to recognize their social responsibility in 
operating them. 

Any attempt to operate the modern business 
system by people who do not understand the 



106 ORGANIZING FOR WORK 

driving forces is sure to reduce its effective- 
ness, and any attempt to operate it in the in- 
terest of a class is not much longer possible. 

For instance, under present conditions the 
attempt to drive the workman to do that which 
he does not understand results in failure, even 
if he is willing to be driven, which he no longer 
is; for he has learned that real democracy is 
something more than the privilege of express- 
ing an opinion. We are thus forced into the 
new economic condition, and, whether we like it 
or not, will soon realize that only those who 
know what to do and how to do it will have a suf- 
ficient following to make their efforts worth 
while. In other words, the conditions under 
which the great industrial and business sys- 
tem must operate to keep our complicated sys- 
tem of modern civilization going successfully, 
can be directed only by real leaders — men who 
understand the operation of the moving f prces, 
and whose prime object is to render such service 
as the community needs. 

In order to secure such leaders they must 
have full reward for the service they render. 
This rules out the doUar-a-year man, whose 
qualifications too often were not that he knew 
how to do the job, but that he was patriotic and 
could afford to give his services for nothing. 
In spite of such a crude way of selecting men 



"THE RELIGION OP DEMOCRACY" 107 

to handle problems vital to the life of the 
nation, many did good work during the war. 

The laws of the United States, however, for- 
bid a man to work for the government for 
nothing, and both those who served at a dollar 
a year, and those who accepted that service, 
violated the spirit of the law, which was aimed 
to sustain the democratic practice of reward- 
ing a man according to the service he rendered. 
Any other practice is undemocratic. 

In 1847, Mr. Lincoln wrote: "To secure to 
each laborer the whole product of his labor, or 
as nearly as possible, is a worthy object of any 
good government. But then the question arises, 
how can a government best eifect this? * * * 
Upon this the habits of our whole species fall 
into three great classes — useful labor, useless 
labor, and idleness. Of these, the first only is 
meritorious, and to it all the products of labor 
rightfully belong ; but the two latter, while they 
exist, are heavy pensioners upon the first, rob- 
bing it of a large portion of its just rights. 
The only remedy for this is to, so far as pos- 
sible, drive useless labor and idleness out of 
existence." 

Attempts are always being made to eliminate 
the idleness of workmen and useless labor by 
the refusal of compensation. Unfortunately, 
however, there has been no organized attempt 



108 OKGANIZING FOE WORK 

as yet to force capital to be useful by refusing 
compensation to idle capital, or to that expended 
uselessly. Capital which is expended in such 
a manner as to be non-productive, and capital 
which is not used, can receive interest only by 
obtaining the same from capital which was pro- 
ductive or from the efforts of workmen, in 
either of which cases it gets a reward which 
it did not earn, and which necessarily comes 
from capital or labor which did earn it. 

Eeward according to service rendered is the 
only foundation on which our industrial and 
business system can permanently stand. It is 
a violation of this principle which has been made 
the occasion for socialism, communism, and 
Bolshevism. All we need to defeat these 
"isms" is to re-establish our industrial and 
business system firmly on the principles advo- 
cated by Abraham Lincoln in 1847, and we shall 
establish an economic democracy that is 
stronger than any autocracy. 

Moreover, it conforms absolutely to the teach- 
ings of all the churches, for Christ, who was the 
first to understand the commanding power of 
service, thus stands revealed as the first great 
Economist, for economic democracy is simply 
applied Christianity. This was also clearly 
understood by the great leaders of the Church 
of the middle ages, whose failure to establish it 



"THE EELIGION OF DBMOCEACY" 109 

as a general practice was largely due to the 
rise of an intellectualism which disdained prac- 
ticality. 

Now, however, when a great catastrophe has 
shown ns the error of our ways, and convinced 
us that the world is controlled by deeds rather 
than words, we see the road to Universal Peace 
only through the change of Christianity from a 
weekly intellectual diversion to a daily practical 
reality. 



INDEX 



Ability to Do Things, 41, 42, 

64, 65, 84 
Accountants, 18, 19, 32, 33, 

38, 
Activities (Charting), 17, 74, 

78, 79, 80, 81, 82, 83, 84, 

85, 86, 87, 88, 91, 92, 93, 

94, 95, 97 
Allies, iii 

America, 14, 23, 32 
American Workmen, 6, 13, 44, 

106 
Authority, 92, 103 
Autocracy, 8, 176 

Bankers, 7, 8, 53, 54, 55, 56, 

69 
Bolshevism, 7, 8, 108 
Business Men, 5, 8, 9, 24, 62 
Business System, iv, 3, 5, 13, 

15, 17, 24, 53, 67, 70, 72, 

76, 81, 85, 90, 98, 99, 100, 

101, 102, 105, 108 

Capital, 12, 26, 108 
Carnegie, Andrew, 55 
Church, 70, 98, 104, 108 
Civilization, 3, 11, 12, 86 
Coal Administration, iii, 10 
Cost Keeping, 25, 26, 28, 29, 



30, 31, 32, 35, 37, 38, 39, 

42, 43, 44, 48, 49, 55, 103 
Cost of New Employees, 88, 

89 
Credit, 84 
Credit System, 52, 53, 54, 55, 

57, 58, 59, 84, 85, 95 
Crozier (General), 78, 81 

Democracy in Industry, 65, 

74, 89 
Democracy in Management, 

92 
Democracy in Politics, v 
Democracy in Production, 74 
Democracy in the Shop, 84 
DoUar-a-Year Service, 18, 20, 

106, 107 

Economic Conditions, 12, 41 
Economics of Democracy, 60 
Economic Force, iii 
Economic System, v, 57, 60, 

74, 75, 96, 97 
Economists, 41, 60, 70 
EflSciency and Idleness, 23, 

24, 25, 33, 47, 48, 49, 64 
Efficiency Campaign, 23, 25, 

89 
Efficiency Methods, 89, 90, 96 



111 



112 



INDEX 



Emergency Fleet Corporation, 

8, 9, 12, 81 
England, 67, 68 
Europe, v, 6, 10, 11, 12, 14, 

15, 71, 76, 77 
Expense of Idleness, 26, 33, 

44, 47, 48, 50, 51 



13, 17, 20, 21, 22, 41, 42, 
66, 68, 69, 76, 85, 108 

Industrial Unrest, 4, 5, 6, 7, 
16 

Inspection, 90 

Kaiser, 8 



Federal Government, 8, 10, 

24, 54, 58, 95 
Federal Reserve Banking 

System, 52 
Federal Trade Commission, 

10 
Financial Credit, 84, 85, 95 
Financing, 8, 9, 52, 53, 54, 

55, 56, 58, 70, 84 
Food Administration, iii 
Ford, Henry, 55 

Germany, iii, 61, 65, 66, 67, 

68, 69, 71, 74, 75 
Government Financing, 8 
Government Ownership, 101 
Great Britain, 11 



Labor, 26, 108 
Labor Unions, 11, 26 

Machine Records, 45, 92, 93, 

94, 95 
Managers, 50, 61, 64, 90, 92, 

94 
Man Records, 84, 85, 86, 87, 

88, 91, 94, 95 
Manufacturers, 28, 29, 30, 31, 

32, 33, 34, 35, 37, 38, 39, 

55, 86, 87 
Militarism, 7, 66 
Military Autocracy, 66, 68 
Military Methods, 41, 65, 66, 

69, 74, 75, 98 
Munitions, 62, 64 



Harvesting Dollars, 24 
Human Factor, 89, 90 

Idleness, 23, 25, 26, 27, 34, 

37, 43, 44, 45, 47, 48, 49, 

92, 93 
Industrial Engineer, 16, 20, 

21, 38, 39 
Industrial Management, 72, 

73 
Industrial System, iv, 3, 8, 



Opinions vs. Facts, 20 
Ordnance Department, 78, 79, 
80 

Parting of the Ways, 3, 6, 14 
Pershing (General), 84 
Political Autocracy, 69, 100 
Political System, iii, 41, 69, 

98 
Preparedness, 60, 61, 62, 65, 

69, 78 



INDEX 



113 



Privilege, 65, 68, 70, 71, 72 
Production, 20, 28, 54, 56, 57, 

63, 64, 76, 79, 80 
Production and Costs, 28 
Productive Capacity, 54, 55, 

57, 62, 63, 64, 77, 95, 99, 

100 
Profits, 5, 7, 12, 14, 17, 33, 

44, 54, 99, 100 
Progress Charts, 17, 74, 78, 

79, 80, 81, 82 
Public Money, 50 
Public Service Corporations, 

9, 10, 12 

Radicals, iv, 6 
Religion, 98, 104, 108, 109 
Religion of Democracy, 98 
Russia, 6, 7, 11, 71, 72 



99, 100, 103, 105, 106, 
108 

Schneider (Dean), 79, 80, 81 
Sherman Anti-Trust Law, 4 
Shipping Board, 81 
Social Preparedness, 60, 65 
Social Responsibility, 15, 

100, 101, 102, 105 
Soviet System, iii, 6, 7, 11, 

15, 71, 72 
Statisticians, 18, 19 

Theories, 32, 43, 57 
Training Workmen, 86, 87, 

88, 89, 90, 91, 102, 103 
Trusts and Combinations, 4 

Value of Industrial Property, 
41, 42 



Service, iv, 3, 5, 8, 10, 12, 13, 
14, 17, 18, 22, 67, 68, 96, 



Wall Street, 52, 53 
War Labor Board, iii 



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